Accountants value Riscorp at $92.3 million
posted 3/22/99
By Michael Pollick
STAFF WRITER
An independent accounting firm now says the workers' compensation insurance business that Riscorp sold to Zenith last year was worth $92.3 million.
The evaluation may set the stage for a resolution of the long-running price squabble that began with a forced sale ordered by the state. But don't hold your breath waiting for Riscorp, now a shell company based in Sarasota, to be liquidated.
That could take another two or three years, according to Riscorp general counsel Walter Riehemann.
"We have pending litigation out there," Riehemann said. "We cannot liquidate the company until the liabilities have been resolved and the assets have been marshaled."
"It won't be within one year," Riehemann said. "It could be two to three years."
Because the state Department of Insurance forced the sale beginning in the summer of 1997, Riscorp had no alternative but to give Zenith possession of the business and its downtown Sarasota headquarters without even agreeing on a firm purchase price.
The transaction was supposed to be concluded at the book value of Riscorp's assets.
Riscorp and its accountants came up with a value of $140 million. Zenith and its accountants construed Riscorp's liabilities differently and came up with a negative net worth of $60 million. Faced with a $200 million disparity, a third accounting firm, Arthur Andersen, was called in to provide an independent valuation.
Riscorp shares moved up 50 percent from February's closing price of $1 to the closing price of $1.50 on Monday.
The shares began moving into higher ground March 11. By March 15, the price was up 50 percent, with a trading range of 1 7/16 to 11/2.
"I think a lot of people were anticipating this report last week," Riehemann said. "We anticipated it. The deadline slipped."
Riscorp has 38.6 million shares of stock outstanding, including a majority interest still owned by its imprisoned founder, Bill Griffin.
At $92.3 million, each share would be entitled to $2.39 from the Zenith transaction, if Zenith agrees to what Riscorp says the contract calls for.
"Right now the biggest thing this company has to do is make sure Stanley (Stanley Zax, chairman of Zenith) pays the money on Friday," Riehemann said.
Zenith issued a press release Monday that left some ambiguity, stating:
"Zenith is now studying the report and conferring with its advisers to determine what changes to its financial statements may be necessary or appropriate."
Zenith spokeswoman Fredericka Taubitz did not return several phone calls to her California office Monday.
Riscorp on Monday filed a three-page statement with the Securities and Exchange Commission to report the accountants' findings.
At the time of the closing in April, Zenith paid $35 million in cash, $10 million of which remained in escrow.
Andersen determined that the business sold had a book value of $92.3 million at closing.
Under the terms of the Asset Purchase Agreement, Zenith is required to pay the additional amount by March 26, plus interest of 6.13 percent a year from April 1, 1998, through the payment date. The interest alone would be in excess of $3 million.
After Zenith pays, $13.8 million is to be held in escrow to secure any obligations of RISCORP to Zenith for breaches of representations and warranties.
Since closing, the two companies have sued each other in separate federal courts.
In October 1998, Riscorp sued Zenith in Tampa's federal court, alleging that Zenith breached its contract.
In January of this year, Zenith sued Riscorp in the southern district of New York's federal court, alleging breach of contract and fraud on Riscorp's part.
Later that month, Riscorp amended its own lawsuit to allege that Zenith stole $4.1 million in securities that Riscorp had on deposit with the Department of Insurance in South Carolina.
Riscorp founder Bill Griffin, his company and four executives faced federal charges that they conspired in a scheme to funnel nearly $400,000 to 27 political candidates in the form of 800 contribution checks.
As the matter headed for a trial last summer, the four co-defendants each pleaded guilty to a lesser misdemeanor charge. Griffin pleaded guilty to one felony count and was sentenced to pay $1.75 million in fines. He also was sentenced to five months at Eglin Federal Prison Camp, a term he is now serving.
The plea bargain and sentencing followed a federal grand jury investigation and indictment. |
