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2007 sale on up and up, Ross says

He takes issue with claim he got more than fair price for pharmacy by Jane Fullerton | September 23, 2009 at 5:19 a.m.

— Democratic Rep. Mike Ross lashed back at critics Tuesday, contending that he received a "fair price" for the Prescott pharmacy he sold in 2007 despite accounts questioning whether his take was "substantially more" than it was worth.

Ross and his wife, Holly, sold the business they'd owned for 14 years, Holly's Health Mart, to Stephen L. LaFrance Pharmacy Inc., which LaFrance founded in 1968. That company has its headquarters in Pine Bluff,with offices in Little Rock, and operates more than 150 drugstores in five states.

While Holly's Health Mart retained its name, it operates as part of USA Drug.

"It was a fair price," Ross said Tuesday, noting that USA Drug is a family-owned, Arkansas-based business. Company officials did not return a message left Tuesday at their Little Rock office.

"They're not into politics; they're into running a successful business," Ross said. "My being in Congress had absolutely nothing to do with it."

LaFrance has donated $3,050 to Ross' campaigns, including $2,300 just weeks after the sale. But Ross pointed out that support came only after several years and $10,000 given to Ross' opponent, former Republican Rep. Jay Dickey.

"In the toughest two races I ever had, he [LaFrance] supported my opponent," Ross said.

According to financial disclosure documents and an account from Ross, the sale involved three separate financial transactions:

The building and land sold for $420,000.

The pharmacy's assets, including the inventory and fixtures sold for between $500,000 and $1 million.

A noncompete agreement with Ross' wife, who continues to work there as a pharmacist, amounted to between $100,000 and $250,000.

Many of those details have been previously reported, and Ross has filed the required disclosure forms. But the online journalism site, ProPublica, published an account Tuesday in conjunction with Politico, an online publication that covers Washington, under the headline "Mike Ross Raises Eyebrows With Healthy Haul."

Ross, the story said, "sold a piece of commercial property in 2007 for substantially more than a county assessment and an independent appraisal say it was worth.

"The buyer: an Arkansas based pharmacy chain with a keen interest in how the [health-care] debate plays out," the story continued.The $420,000 for the land and building was "an eye-popping number for real estate in the tiny train and lumber town about 100 miles southwest of Little Rock."

"You can buy half the town for $420,000," Adam Guthrie, chairman of the Nevada County Board of Equalization and the only licensed real estate appraiser in Prescott, was quoted as saying.

ProPublica cited the 2004 county assessment, the most current available at the time of the sale, that valued the property at $263,700. The assessment has since increased to $269,000. In addition, Pro-Publica hired an outside appraiser to put a current value on the lot and the building, which came in at $198,000.

But Ross issued a statement pointing out that he spent $316,000 in 1998 to construct the pharmacy, and then sold it for $420,000 in 2007.

"The annual return on the investment was less than 4 percent," he said. "I would've made more during that time period if I'd invested in a certificate of deposit, you know, a CD at the local bank."

In end, he added, "Of course we sold it for a profit. Why else would we sell a profitable business?"

Richard Jackson, a professor of pharmacy administration at Mercer University in Atlanta and an expert in evaluating the worth of pharmacies, said the price tag for the pharmacy's assets was "well within the ballpark" of what similar pharmacies in similar communities would bring.

Scott Pace of the Arkansas Pharmacists Association echoed Jackson, noting that the sale of any pharmacy's assets would take into consideration a number of factors in addition to the value of the real estate. He provided data from the National Community Pharmacists Association showing that the average independent community pharmacy had $3.6 million in sales in calendar year 2007, with an average inventory of more than $298,000.

But a key consideration would be the number of prescriptions filled, with buyers commonly paying "upward of $10 per prescription" for a pharmacy's assets, beyond the amount paid for buildings and land. The average community pharmacy fills more than 61,000 prescriptions a year, or 196 a day, according to the national association.

Jackson agreed that the keys for the buyer of a pharmacy are those assets - such as the inventory, the fixtures and the "good will" the business has established in the community, an intangible asset "with significant value especially in a rural area."

The price the Rosses received for the pharmacy's assets - between $500,000 and $1 million - is "very average," Jackson said.

"There's nothing unusual about that whatsoever," he said. "I value pharmacies every day, and most are going to fall within that range."

Although Jackson said he couldn't speak to the value of the noncompete clause, he added that "people come to that pharmacy not because of the bricks and mortar, but because of the pharmacist. There is a distinct and significant value to that pharmacist being there."

Mike and Holly Ross bought the pharmacy in 1993 and ran "a completely legal and respected small business," Ross said in a written statement, for nearly 15 years, moving to a new location and expanding to a dozen employees.

Ross said Tuesday that, while the business was "very prof it able," they always thought they'd sell and had even talked about it with LaFrance's company in 2004, but those talks never progressed. Then the company returned three years later and made an offer for the pharmacy. This time, Ross said, the timing was right to sell.

Because he was a congressman, Ross said, he sought advice from the House Ethics Committee and hired a tax attorney to ensure that the sale was handled properly.

According to House financial disclosure forms, which report income in ranges, the Rosses received between $100,000 to $1 million in dividends from the sale. While the forms also indicate that the couple continues to own 100 percent of the stock, Ross said, the dividends were paid out over a two-year period, and they are no longer earning income from the company they once owned, aside from Holly Ross' salary as a pharmacist.

Ross still owns the original pharmacy building in downtown Prescott, which the company declined to purchase. Ross leases it to USA Drug, which stores equipment and supplies there.

While LaFrance did contribute to Ross, LaFrance's $41,789 in contributions from 1994 to 2008 have gone primarily to Republicans, according to the Center for Responsive Politics, a Washington nonprofit group that monitors campaign contributions. The only exceptions have been Ross and Arkansas' two U.S. senators - Blanche Lincoln and Mark Pryor - both Democrats.

Ross noted that the story about the pharmacy sale appeared on the same day staged a protest at his Hot Springs office. That liberal political group has received funding from the same couple, Herbert and Marion Sandler, that launched the nonprofit ProPublica.

"When you're in the eye of the storm," he said, "they come after you."

Front Section, Pages 1, 7 on 09/23/2009


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