Year Marked by Bad News and a Few Bright Spots : Review: Amid the layoffs, plant closings and scandals, one biotechnology firm experienced the region’s biggest success.
It was a tough year for many regional businesses. Not only was there the slumping real estate market, escalating layoffs in the struggling aerospace and financial industries, and plant closings--but one local bank was found to be part of the world’s biggest bank scandal.
Amid all the bad news, however, there were some bright spots. Most notable among them was Amgen Inc., which solidified its position as the premier biotechnology company on the strength of its two marketable drugs.
Thousand Oaks-based Amgen has achieved a near-monopoly on the $400-million-a-year market for biotechnology’s biggest drug, the anemia-fighting erythropoietin (EPO). In October, the U. S. Supreme Court ended a long legal struggle in Amgen’s favor when it refused to hear a patent appeal by Genetics Institute Inc. involving rival versions of EPO.
Amgen has also been outselling competitor Immunex Corp. in the two companies’ marketing battle of infection-fighting drugs. Industry analysts expect these drugs to become the next family of blockbuster biotechnology drugs, with annual sales reaching $600 million in five years. As a result, Amgen’s stock was a favorite among investors in 1991 as its share price more than tripled to $69 a share.
But Amgen’s success was in stark contrast with the hard times at many other businesses in the region.
Perhaps the most devastating local news of 1991 was General Motors’ announcement in July that it would close its 44-year-old Van Nuys plant next summer, putting 2,600 blue-collar employees out of work. Closing of the facility--the last remaining car factory in Southern California--is seen as a result of the declining U. S. auto industry and one that could have a serious ripple effect on a local economy that’s already suffering from aerospace industry cutbacks.
The plant’s future had been on shaky ground for years because of GM’s decision to move production of Chevrolet Camaros and Pontiac Firebirds, now made in Van Nuys, to a plant in Canada for the 1993 model year. But many workers and local officials had hoped that GM would find another use for the plant. Just a few weeks ago, Los Angeles Mayor Tom Bradley and other local officials met with GM executives in a failed attempt to persuade them to keep the plant open or help convert it to an electric or rail-car assembly plant. GM faces so many problems that it recently announced plans to close 21 other plants--which makes the chances of keeping the Van Nuys plant open all but hopeless.
If 1991 was a bad year for business, it was a good year for business scandals. One of the biggest was the criminal investigation into drug-money laundering and influence peddling by the Luxembourg-based Bank of Credit & Commerce International. This year, it was revealed that BCCI gained secret control of Independence Bank in Encino in 1985 through a front man, Saudi tycoon Ghaith R. Pharaon, after U. S. regulators found BCCI unfit to own banks in this country.
Independence lost $42.3 million in the first nine months of 1991, mostly because of bad real estate loans, and had warned that it could fail by year-end without a cash infusion. But earlier this month as part of its guilty plea to racketeering charges, BCCI agreed to forfeit $275 million to help shore up Independence.
Meanwhile, a controversy grew over a plan by the management of Health Net, the state’s second largest health-maintenance organization, to covert the Woodland Hills-based HMO from nonprofit to for-profit status as a step toward acquiring it.
Under the plan, Health Net would donate $127 million to charity over 15 years, although several outside bidders have offered to donate up to $300 million. Then management would technically purchase the HMO for another $1.5 million--a deal that could earn Health Net executives millions of dollars in personal profits if the HMO is later sold or goes public.
The plan has raised an outcry from critics, including Consumers Union, publisher of Consumer Reports magazine, who contend the $127-million figure vastly understates Health Net’s value and would shortchange charity. The state Department of Corporations, which must approve all HMO conversions, is studying the Health Net plan.
Another local controversy in 1991 covered proposed revisions to the master development plan for Warner Center in Woodland Hills. The new plan, unveiled by city planning officials in July, would allow the business center to nearly double in size to 26.8 million square feet. This has raised the ire of local slow-growth advocates.
But developers who have projects planned in Warner Center, including JMB/Urban Development Co., LaSalle Partners and May Centers Inc., have argued that the proposed plan is far more restrictive than it appears on the surface and would saddle them with costly fees that would make their projects prohibitively expensive. City officials hope to implement the new master plan in mid-1992.
It was also a tumultuous year for Live Entertainment Inc., a Van Nuys videocassette distributor and retailer. Live agreed in November to merge with its 53% owner, Carolco Pictures Inc., the Los Angeles-based producer of “Terminator 2: Judgment Day,” 1991’s top-grossing film with more than $204 million in box office receipts. Terms of the merger called for Carolco to acquire the rest of Live in a complex stock swap that guaranteed Live stockholders the equivalent of $14 for each share owned.
But Carolco called the deal off after its stock plummeted. Both companies, which have reported large losses in recent quarters despite the success of “Terminator 2,” have also been roiled by management turmoil. Live Chairman Wayne Patterson resigned shortly before the merger deal collapsed and was replaced temporarily by entertainment industry veteran Alan Hirschfield.
Carolco President Peter Hoffman announced Monday that he plans to resign, a move that was widely expected because of Hoffman’s reported rift with Chairman Mario Kassar. Carolco has also slashed its staff in recent weeks and announced that it would drastically curtail production in 1992, a move that could have a dramatic effect on Live because of its dependence on Carolco’s films.
Throughout 1991, the local housing market continued to suffer, with sales of existing single-family houses and condominiums through November down 7% in the San Fernando Valley contrasted with a year earlier. And the number of properties listed for sale reached a record 14,300 in August.
The local commercial real estate market fared somewhat better. Although the Valley’s office vacancy rate rose to 16.5% in the third quarter from 13% in the first quarter, that rate was well below the 18.4% vacancy level for all of Los Angeles County and lower than vacancy levels in cities nationwide, according to real estate broker Grubb & Ellis Co.
The East Valley--home of Burbank’s Media District--was a particularly strong market with just 5.5% of its offices empty in the third quarter.
But the battered commercial real estate market overall has been the source of financial troubles for many regional thrifts, including Glenfed Inc., the Glendale-based parent of Glendale Federal Bank; Citadel Holding Corp. in Glendale, the parent of Fidelity Federal Bank, and Valley Federal Savings & Loan Assn.
Local banks have also been hurt by the slumping real estate market, including CU Bancorp, the parent of California United Bank. Previously one of the region’s most financially stable small commercial banks, California United recently added to the reserves it sets aside for possible future loan losses and expects to log its first annual loss this year.
1991 was also the year of comeuppance for former Burbank-based financial talk show host Richard (R. G.) Reynolds. Last month, a federal jury in Los Angeles found Reynolds, 44, guilty of 13 counts of mail fraud and two counts of witness tampering. During the trial, prosecutors argued that Reynolds had duped fans of his radio and television talk shows into sending him money to invest in stocks and real estate. But Reynolds actually spent most of investors’ funds on business and personal expenses, and mailed investors phony account statements saying they had earned large returns, prosecutors said.
Reynolds has been sentenced to 17 years in prison and ordered to repay $420,955 to his victims.
