Business briefs for July 2, 2004

Friday, July 2, 2004 | 11:03 a.m.

Firm's stock down on problems

COLUMBUS, Ohio -- Shares of Cardinal Health Inc. tumbled nearly 25 percent Thursday, a day after the company lowered its fourth quarter and fiscal 2005 earnings estimates and disclosed a subpoena from regulators.

Cardinal, which provides medical services and products, was paying the price for releasing estimates that were too aggressive, said Andrew Speller, an analyst with A.G. Edwards & Sons Inc.

Shares of Cardinal, based in suburban Dublin, dropped at one point to $52.40 in trading Thursday on the New York Stock exchange, a 14-month low. The shares closed at $52.86, down $17.19.

State sues over Kool promotion

BALTIMORE -- Maryland has filed a lawsuit against the maker of Kool cigarettes, charging that the company is illegally targeting young people with a marketing campaign built around hip-hop music.

The suit announced Thursday by Attorney General J. Joseph Curran asked that Brown & Williamson be fined at least $5.3 million and prohibited from continuing with its Kool Mixx 2004 promotional campaign in Maryland.

"They took hip-hop, one of the music forms most popular with youth ages 12 to 17, and literally wrapped it around their cigarettes," Marlene Trestman, special assistant to the attorney general, said Thursday.

Mark Smith, spokesman for Louisville, Ky.-based Brown & Williamson, said the campaign "celebrates hip-hop music and the art form of the mixers, the DJs, who mix music." Contests are held in bars where alcohol is sold and young people are not admitted, he said.

"How can you be marketing to kids when it's an adult-only function? It's nonsensical," Smith said. "There is no basis for this suit. The entire campaign is conducted in adult-only venues, adult-only functions."

Two former execs indicted

BIRMINGHAM, Ala. -- A grand jury indicted two former HealthSouth Corp. executives in a bribery scheme involving the company's $50 million contract to run a Saudi Arabian hospital, prosecutors said Thursday.

The charges were in addition to those filed previously against two other HealthSouth officials who agreed to plead guilty in the deal, and they bring to 20 the total number of ex-HealthSouth employees charged since a fraud scheme was exposed at the company last year.

Robert E. Thomson, a former president and chief operating officer of HealthSouth's inpatient division, and James C. Reilly, a lawyer who was vice president for legal services, were each named in a four-count indictment. They were charged with conspiracy, traveling outside the country to commit a crime and a securities violation.

Antitrust case winding down

SAN FRANCISCO -- Oracle Corp. ended an antitrust case over its hostile bid for PeopleSoft Inc. on Thursday with testimony from an economist who said Oracle wouldn't be willing to risk alienating customers by raising software prices after an acquisition.

On the last day of a four-week trial to determine whether Oracle can pursue its proposed $7.7 billion hostile takeover of PeopleSoft, Oracle continued to try to shoot holes in the U.S. Justice Department's lawsuit to block the merger. The government says the acquisition would reduce competition and increase prices for software for financial and human resources at large companies.

"This is so fundamentally contrary to the economics of this industry," said David J. Teece, an economist at the University of California, Berkeley. "Oracle is trying to sell these customers other things. They would be shooting themselves in the foot if they were to raise prices."

A favorable ruling would put Oracle Chief Executive Larry Ellison, who testified yesterday, closer to his yearlong goal of acquiring PeopleSoft and its 12,200 customers and $1.2 billion in annual license and maintenance fees.

The case "is much closer now than I think anyone had anticipated," said Donovan Gow, an analyst at American Technology Research, which has a buy rating on PeopleSoft shares. Before the trial started, "from the investor point of view, it was largely seen as 90 percent in favor of the Justice Department. Now its much closer to 50-50."

Restructuring proposal planned

ATLANTA -- Financially troubled Delta Air Lines Inc. plans to submit a restructuring plan that includes labor cost-cutting measures to its board in late August, chief executive Gerald Grinstein said.

In a memo Thursday to employees of the Atlanta-based airline, Grinstein said the plan also includes operational restructuring and innovation he believes the company will need to survive and compete.

Delta, meanwhile, continues to seek deep wage concessions from its pilots as its losses and fuel costs mount.

It has warned about the possibility of bankruptcy if it doesn't get the cuts it needs.

Pilots and management have been in on-again, off-again talks for about a year.

"Planning teams are working around the clock because it is no secret that financial pressure on Delta grows more urgent with each passing day," Grinstein wrote in the memo. "As I have said in my meetings with you around the system, it is painfully clear that last year's determination of the level of savings we would need for long-term viability is no longer valid."

Research firm may be sold

BOSTON -- Charles River Laboratories International Inc. is proposing to buy Inveresk Research Group Inc. for $1.5 billion in cash and stock in a merger of two companies hoping to capitalize on the growing market for drug research and development.

The deal announced Thursday has been approved by both companies' boards but still awaits shareholder and regulatory consent. It would create a company with 7,300 employees and about $920 million in revenue, based on figures for the 12 months ended March 31.

The combined company would keep Charles River Laboratories' name, have headquarters at Charles River's home in the Boston suburb of Wilmington and operate in the United States, Canada, Europe and Japan.