Dismal trading

Multinational funeral service companies were, for a while, the darling of the stock market. In a fragmented industry, the big corporations were supposed to be able to expand quickly by swallowing the most strategically located of the thousands of small, family-owned chains just as, demographers predicted, the death rate begins a prolonged rise. But "after a year in which profit margins and expectations have gone under," observed The Motley Fool, an investment advice website, "shareholders have been reluctant to attend the wake."

The most corpse-like company is the Loewen Group Inc., based in Burnaby, British Columbia. Last month it filed for bankruptcy protection in the United States and Canada while it restructures its $2.3 billion debt. With over 1,100 funeral homes and 400 cemeteries, Loewen is the world's second largest death-care chain after Service Corporation International (SCI) of Houston, Texas, which has 3,500 homes and 400 cemeteries.

Loewen's serious troubles began in 1995, when a Mississippi jury awarded $500 million to a lone 72-year-old undertaker in a breach of contract lawsuit against the company, the largest award in state history. The plaintiff had sought $25 million.

The Loewen Group was also the biggest victim of Rev. Henry J. Lyons, the ex-president of the National Baptist Convention U.S.A. who was convicted earlier this year of fraud, theft, and other crimes. During the Mississippi trial, Loewen was negotiating with Mr. Lyons to have denomination employees market Loewen services to its 8 million members in exchange for a slice of the profits.

After the Mississippi verdict, Mr. Lyons told the company that it had been "railroaded" and that there were rumors of jury tampering. He offered to hire, with Loewen's money, investigators who could get evidence for an appeal. One Loewen executive testified at Mr. Lyons's trial that the company had seen him as "the most powerful black man in America," and the key to dominating the market among blacks. Loewen trusted him and was scammed out of $3.2 million.

Loewen eventually settled the Mississippi case for $175 million. However, the increased debt load helped open up the company to hostile takeover attempts by SCI. Rather than give up control, founder Ray Loewen accelerated his buying spree in 1996-97, acquiring hundreds of operations and so much debt that SCI backed off. Eventually the interest payments caught up with Loewen. In June 1998, its stock traded at $25 per share; last month it was buried under 50 cents.

Mr. Loewen grew up in Steinbach, Manitoba, and is a Bible college graduate. Back in the 1960s, before he turned his family's modest funeral parlor into an international concern, he told one young couple just heading to the mission field that he "envied them" but he couldn't leave the business. With the company floundering last summer, he resigned and in October the Canadian Imperial Bank of Commerce took possession of 10 million of his shares, worth $93 million at the time.

For its part, SCI's balance sheet has been badly dented by rising costs and sagging profit margins. SCI's 1998 annual report blamed "weak death rates," lower average sale prices, and having to fulfill old "pre-arranged" funeral contracts, which are less profitable than contracts signed in recent years. More people (over 21 percent) are choosing cremations, which generally cost less.

The company also conceded that competition is a factor. Despite a decade of consolidation, major chains own only about 17 percent of 23,000 U.S. funeral homes; 11 percent are owned by SCI. Many independents are resisting buy-out offers and a few even dropped prices, forcing SCI to keep pace in areas where it expected to raise prices or already had. These factors, besides a blizzard of lawsuits filed earlier this year alleging federal securities violations, drove SCI's stock price from $45 to $15.