Syncor May Have Broken Bribery Laws

Nuclear medicine provider Syncor International Corp. said Wednesday that it may have broken U.S. bribery laws by making payments to health-care facilities in Taiwan and China -- a disclosure that hammered the stock price of the Woodland Hills company and put on hold its pending acquisition by Cardinal Health Inc.

Syncor Chairman Monty Fu and his brother, Moses Fu, who directs the company’s Asian operations, are on leave “pending completion of an investigation into their involvement in the payments,” the company said.

Monty Fu also stepped aside as a director, while a special committee of Syncor’s outside board members looks into possible violations of the 1977 Foreign Corrupt Practices Act, which bars U.S. companies from bribing foreign officials.

The company wouldn’t provide details about the payments that are under investigation.

Syncor said it “does not currently believe” the questionable payments are material to its financial results, but added that it won’t know for sure until the inquiry is complete.

Analysts said the more pressing question is whether drug wholesaling giant Cardinal -- which discovered the irregularities last week during the pre-merger due-diligence process -- will call off its deal to buy the much smaller Syncor for more than $900 million in stock and assumption of $200 million in debt.

Cardinal’s interest is in Syncor’s main business, the largest U.S. chain of pharmacies that dispenses radioactive materials used in diagnosing and, in some cases, treating diseases.

As a unit of Dublin, Ohio-based Cardinal, Syncor would gain leverage next year in renegotiating a key contract with Bristol-Myers Squibb Co. under which its 130 U.S. pharmacies sell Cardiolite, a radioactive liquid that allows doctors to make images of blood flow around patients’ hearts. Cardiolite, which combines Bristol-Myers chemicals with Syncor’s expertise in radioactive substances, is by far the company’s most important product, analysts said.

“If the merger doesn’t go through, Syncor has a host of problems trying to make it as a stand-alone,” said Andrew L. Speller, an analyst at A.G. Edwards & Sons, who Wednesday downgraded Syncor shares from “hold” to “sell.” Speller said Cardinal, for its part, would be little affected if the deal fell apart.

Syncor said after Cardinal alerted it to the problems, senior managers notified the company’s board, which decided by Saturday to create the committee of outside directors. Attempting to defuse the potentially explosive issue, the panel hired Robert Bennett, the prominent Washington lawyer who represents Enron Corp. in its dealings with the government.

Bennett and a Cardinal attorney met Tuesday with officials of the Securities and Exchange Commission and the Justice Department, assuring them the company is serious about uncovering and correcting any potential wrongdoing, a Syncor spokesman said.

SEC and Justice Department officials declined to comment. Bennett and the independent directors couldn’t be reached. Neither could the Fus.

Cardinal’s chief executive, Robert D. Walter, said he supported Syncor’s actions but has ordered a review of whether the merger should be completed.

“We consider this a very serious situation and we will continue to closely monitor events,” Walter said in an interview. “Cardinal Health maintains the highest ethical standards in all of our businesses, and we approach acquisitions with the same standards.”

Analyst Raymond G. Falci of Bear Stearns said Cardinal will proceed cautiously but may well complete the deal because “there is still a lot of strategic value in Syncor.” A deal with Syncor, he said, would give Cardinal “a leadership position” in nuclear medicine distribution and a geographic presence in 80% of the major markets in the U.S. “This could be one of the big growth areas in the pharmaceutical industry,” Falci added.

Allan J. Mayer, a spokesman for Syncor, said the company is investigating transactions in all foreign countries where it operates, not just in China and Taiwan, where Cardinal turned up questionable payments. “At this point, no questions have been raised about the domestic operations, and none are expected to be,” Mayer said.

Syncor rescheduled a shareholder meeting to Dec. 6 from Nov. 19 to vote on the Cardinal deal. Its shares closed down $8.52 to $27.40 on Nasdaq, a loss of 24%. Cardinal shares were up 72 cents to $70.01 on the New York Stock Exchange.