Flow General, Inc. yesterday announced it will sell its Worthington Diagnostic Systems unit to Cooper Laboratories in exchange for $16.5 million worth of Cooper stock. The transaction includes the rights to Flow's licenses in a promising "artificial skin" technology.
"This is part of our overall strategy to reduce our debt and restore profitability," said Rod Cook, Flow General's vice president of finance. "The best way to reduce the debt was by divestiture."
In acquiring Worthington, Cooper Labs will also acquire $34.7 million of the company's liabilities. That debt assumption would drop Flow General's long-term debt to about $42.3 million from $72 million.
"We concluded that continued servicing of the debt was not in our best interest," said Cook.
The sale, which is subject to a definitive agreement, comes four months after Flow General announced its intention to sell the division and only 18 months after Flow itself had acquired the company for $57.7 million.
"Initially, the desire was to integrate Worthington into our biomedical operations," Cook said, "That didn't happen. We would have liked to get at least the original purchase price for it."
Though Worthington revenues were estimated at roughly $32 million in fiscal 1983, Flow General officials say they "don't know" whether it is operating at a profit.
"I believe that they have been losing money," said Parker Montgomery, chairman of Cooper Laboratories, a diversified medical technology company based in Palo Alto, Calif. with annual revenues approaching $450 million. "We think it's an excellent fit for us because we can integrate it into our operations. Because of the problems, they never had a chance to integrate into Flow."
Montgomery indicated that Flow General could choose to record the transaction as a tax-free stock exchange, but a Flow General spokesman said the company might decide to sell the stock to reduce its debt further.
Flow General, which had revenues of $138 million in 1982, has been losing money for more than a year. In April, it sold its Flow Sensor division at less than book value. In March, both the company's chairman and president resigned. Both men were replaced by Grant C. Ehrlich, a founding director of the company. The company, says one analyst, has been retrenching ever since.
The Worthington sale also includes the development and marketing rights to an artificial skin technology currently being explored at the Massachusetts Institute of Technology. The research is directed toward the creation of artificial cells that have the property of human skin and could serve as a skin substitute. Burn victims could be beneficiaries of the technology.
Cooper's Montgomery said the program will be "subject to accelerated research and development" funding.
However, a Flow General spokesman said the sale did not include rights to an associated program to develop artificial blood vessels. Flow General currently has a joint venture in that area with Meadox Medicals Inc. The company said it was continuing to look to other joint ventures to get its research and development programs to market more quickly.