PVP faces bankruptcy; veterinarian investors stand to lose

SEC filings reveal distributor entered into forbearance with lender

August 12, 2010 (published)
By Michael Johnson; Jennifer Fiala

Nearly 1,900 veterinarians with shares in Professional Veterinary Products (PVP) could lose their investments as company officials weigh the prospect of filing bankruptcy or selling assets to a competitor.

According to reports, Oct. 13 marks the final workday for PVP’s staff, which at one time numbered 360 employees. This final act culminates months of layoffs for workers of the animal health products distributor, based in Omaha, Neb. A website that reviews employers reports that 36 PVP staffers were let go in February.

Requests for comment from the VIN News Service of PVP’s top officials, including CEO Steve Price, were not immediately returned.

Yet as PVP treads water financially, many of its shareholders and veterinarians who rely on its services have no idea that the company is floundering, let alone insight as to what’s causing its demise. Among the shocked and dismayed is former CEO and founder, Dr. Lionel Reilly.

Reilly, who retired from PVP in January 2009, after 26 years with the company, spoke yesterday to the VIN News Service from his home in Elkhorn, Neb.

“For every year I was there, this company was profitable,” he contends. “I would have never suspected this. Apparently, some investments were made in a certain business segment that went wrong. Now either someone’s going to buy the company or it’s going into bankruptcy. By next week, we’ll know a lot more.”

Reilly was purposefully vague and declined to give further details considering he has a vested interest in any bankruptcy proceedings — his retirement funds are at risk with the company. According to filings with the U.S. Securities and Exchange Commission (SEC), PVP entered into forbearance on July 12 with Wells Fargo, its lender. The agreement ends on Aug. 31.

PVP was founded in 1982 by a group of veterinarians who created a model whereby the company would be jumpstarted by the investments of practitioners using its services. The company wholesales and distributes pharmaceuticals and health care supplies to licensed veterinarians, carrying roughly 20,000 products with distribution centers in four states. At the height of its success, 2,000 veterinarians had each purchased one $3,000 share, creating $6 million in capital for PVP. In return, shareholders received discounted goods from the distributor and annual rebates.
Though PVP is a private company, it is obligated to provide financial statements to the SEC because it has more than 500 owners.

The company’s most recent quarterly report filed June 1 shows net sales and other revenues increased by $13.5 million as of April 30, 2010, while the cost of sales increased by $13.4 million, resulting in gross profits of 0.8 percent. Further details reveal that the company's operating loss for the nine-month period ending April 30, 2010, increased to $9.1 million compared to a loss of $4 million for the same time the previous year, while interest expenses increased and interest income decreased.

Net loss increased by $4.4 million to $7.3 million compared to a $2.9-million loss for the same period the previous year. The net loss increase was primarily due to a surge in the cost of sales and decrease in gross profit.

The report cites litigation expenses and costs totaling $2.6 million as adding to the deficits.

It appears that the expense relates to litigation brought by IVESCO LLC, a competing distributor in the animal health arena.

An SEC report shows that PVP recently settled a lawsuit filed by IVESCO in April 2009 in United States District Court for the Northern District of Iowa. IVESCO alleged that PVP conspired with departing IVESCO employees to “take over or steal” the company’s swine business. IVESCO accused PVP of conspiring to unfairly compete, tortuous interference with business expectations between IVESCO and its customers and employee relationships, aiding and abetting an alleged breach of duty by former IVESCO employees, in addition to other allegations.

PVP attempted to enter the swine health arena just before last year’s swine flu pandemic set in.

Additional SEC reports show that PVP terminated its vice president of operations Jaime Meadows on June 30 after six months on the job, but that he recently signed a parachute clause with the company that hinges on its sale. According to the filing, Meadows will stay on with PVP until June 1, 2011, or when the company is sold, whichever comes first. PVP also has agreed to pay Meadows a severance package and his medical insurance for a year.

PVP’s Chief Financial Officer Tara Chicatelli left the company on May 10. The details of her departure were not reported, and the VIN News Service has been unable to reach her.

Despite the public nature of the SEC statements, it appears that many with a stake in PVP have not seen them. Last Friday, a message board discussion surfaced on the Veterinary Information Network (VIN), an online community for the profession.

The gist of the query: Does “anyone know anything” about the state of PVP?

A dozen responding comments, some relaying information from PVP board members, have VIN members increasingly incensed and worried, with an apparent lack of formal correspondence from company officials adding to their anxiety.

PVP spokeswoman Cindy Christensen reported to the VIN News Service that communications were sent directly to shareholders concerning PVP’s financial difficulties. She declined to elaborate about the company’s financial woes due to its private status.

But Dr. John Tomlinson Jr. and others on VIN stated that they’ve received nothing in terms of direct communication from PVP. For his lack of knowledge, Tomlinson blames himself for not keeping a closer eye on his investment.

“I wouldn’t manage my clinics like this,” he acknowledges.

The practitioner from West Virginia purchased his share of PVP in 2001. Tomlinson reports he contacted the company on Monday and was told he could not sell it.

“I made some calls to my neighboring clinics that I know are shareholders as well to let them in on the financial circumstances (of PVP),” he says. “We feel like that over the course of last year, there has been no transparency. It’s ludicrous that there’s been such a lack of information to the shareholders.”

Former CEO Reilly expressed sadness concerning the financial state of the company.

His voice solemn, he spoke of the employees: “To see people who counted on us for a good, safe work environment with fair salaries and good benefits treated like this is awful. All of my good friends will probably lose their jobs.”

The prospect of closing shop appears in sharp contrast to where PVP stood earlier this decade. In 2005, the Society of Human Resource Management named PVP as one of the top small- to medium-sized companies to work for in America.

“When you work for 26 years to build a successful company and see it turn out this way, it’s just terrible,” Reilly says, acknowledging that distributors positioned to buy PVP likely will wait until it clears bankruptcy in order to rid the purchase of lingering debt.

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