The Boston Globe from Boston, Massachusetts • 39

Auto leasing D13 Commercialindustrial D15 Comics D16-17 THE BOSTON GLOBE TUESDAY, JANUARY 25, 2000 Markets Broad-based sell-off Stocks plunge as optimism about corporate earnings gives way to jitters about rising interest rates and their impact on profit growth. The Dow falls 243.54. D2 243.54 139.32 6.03 0.0064 0.04 DOW JONES INDUSTRIALS 11,008.17 NASDAQ COMPOSITE INDEX 4096.08 BLOOMBERG MASS. INDEX 325.73 THE DOLLAR 0.9973 euro 30-YEAR TREASURY YIELD 6.65 Antismoking ads hit snag A campaign, headed by Arnold Communications, scheduled to air soon apparently has gotten off to a rocky start, with some TV networks looking for changes in the ads. D13 Since giving money to farmers hasn't solved the farm problem in the last half a century, it is unlikely to do so in the next, writes Lester Thurow.

D4 For updated market quotes and news: Glob Online at www.boston.combusiness. David VVarsh Portrait of a real villain Running defense Pentagon's Gansler seen key to revival of Raytheon ends talks to buy drug firms Gillette shares tip as some see it as target vV ITH A DETERMINED RES-cue attempt perhaps only a few days away, I'm not going to dwell any longer on the past at the Harvard Pilgrim 1 r3 By Chris Reidy GLOBE STAFF AFP RLE PHOTO Procter Gamble which makes everything from Crest toothpaste to Pepto-Bis-mol, said yesterday it has ended talks to buy drug makers Warner-Lambert Co. and American Home Products reportedly after an earlier attempt by to acquire Gillette Co. was rebuffed. While some Wall Street analysts think will now try to buy another pharmaceutical company, shares of Gillette stock rose 1 to close at 40 after said it would no longer pursue a $140-billion stock purchase of Warner-Lambert and American Home Products.

Because of a historically weak stock price, Gillette may be in a vulnerable position, and it may be an attractive target for said analysts who follow the Boston maker of razor blades, Duracell batteries, and other consumer products. In theory, a low stock price might mean Gillette could be bought for a bargain price. Gillette declined to comment on any speculation about a possible acquisition. Nor would it comment on a Wall Street Journal story yesterday which reported that had made an overture to Gillette that was rejected. A spokesman for Cincinnati-based said the consumer products giant continues to look for acquisition targets, but declined to discuss the companies it might be interested in.

"Acquisitions are very much a part of our growth strategy," said spokesman Simon Denegri. With everything seemingly up in the air, Wall Street analysts sketched out a wide range of possible scenarios. GILLETTE, Page D7 Jacques S. Gansler, undersecretary of defense for acquisition, technology, and logistics, with Defense Secretary William Cohen and Attorney General Janet Reno, discussing the effects of a proposed Lockheed-Northrop Grumman deal In 1998. Gansler helped Mock the planned takeover.

By Ross Kerber GLOBE STAFF ASHINGTON -One man who could revive Raytheon Co. hasn't worked there for 38 years. Jacques S. Gansler since then has done policy That period ended in 1998, a year into Gansler's tenure, when he determined industry consolidation had gone far enough and helped block a planned takeover of Northrop Grumman Corp. Now, continued restructuring and perhaps some new procurement policies from the government should restore the industry's financial health, Gansler said.

Last week, in response to defense companies' travails, he appointed a panel to study steps the government GANSLER, Page D6 Missile crisis Raytheon increasing reliance on defense business. 13 Total sales Electronics Jacques S. Gansler Position: Undersecretary of Defense for Acquisition, Technology, and Logistics Birthplace: Newark, N.J. Birth date: Nov. 21, 1934 Industry experience: Engineering manager, Raytheon Co.

1956-62; program manager, Singer Corp. 1962-70; vice president, ITT 1970-72; senior executive, TASC 1977-97. Public experience: Deputy assistant secretary of defense, 1972-77. Academic experience: Visiting scholar, Kennedy School of Government Harvard University, 1984-1997. Education: Yale University, bachelor's in engineering; Northeastern University, New School for Social Resarch, master's; American University, Ph.D in economics.

Source: Gale Research Who's Who in America, Department of Defense. (mostly defense) 13.7b health plan not much, anyway. I trust I've said enough to make the case that the state's largest health maintenance organization had irregular management and governance for the better part of a decade. Once the situation is stable, a high priority should be assigned to developing satisfying accounts of what went wrong. I did have a chance to talk by phone last week to a retired hotel industry executive in sunny Arizona, Manuel Ferris.

He says that while serving as chief executive of Harvard Pilgrim, between 1991 and 1996, he paid Massachusetts taxes, voted here, and did jury duty even though most Thursday afternoons he locked his Four Seasons condo and went home to Tucson. It is possible to admire his citizenship and still doubt his competence to manage an HMO in a period of rapid growth. A fine specimen of the kind of going-over that the Harvard Pilgrim case deserves is "The Fall of the House of AHERF: The Allegheny Bankruptcy" in the January-February issue of Health Affairs. It tells the story of the nation's largest nonprofit health care failure. It relates how a prosperous little Pittsburgh hospital mutated into Allegheny Health, Education and Research Foundation in 1983 and, during the next 15 years, grew into a statewide chain of hospitals and physicians' practices, complete with a bustling medical school before going broke in July 1998, with $1.3 billion in debt and 65,000 creditors.

It was subsequently broken into halves, east and west, and sold or merged. The Health Affairs account isn't as colorful as the six-part series published a year ago by the Pittsburgh Post-Gazette or the two-part story by the Philadelphia Inquirer. It doesn't offer as much insight into the motivations of the major players. But coming later in the proceedings and pitched for a higher-level audience, it's more authoritative. It was undertaken on behalf of the Association of Professors of Medicine by a Wharton School professor (Lawton R.

Burns), a fellow of the University of Pennsylvania Medical School (John Cacciamani), an Arthur Andersen consultant (James Clement), and a nurse manager (Welman Aquino.) The verdict: The CEO and his financial aide were to blame. True, it was a strategically challenging time. The chain zigged when it should have zagged, embarking on an ambitious strategy of rolling up other hospitals and the physicians associated with them, just as reimbursement from major payers dramatically contracted. Acquisitions increased the system's debt and competed for capital, which sapped the stronger institutions and led to massive cash transfers. Tricky accounting procedures internal subsidies, hidden internal cash transfers, raids on hospital endowments, and enormous debt facilitated the growth.

Th chief financial officer was of questionable integrity, the authors say. The board failed to do its duty, permitting its chairman -a leading critic of the expansion to be run off by a newly discovered "three-year term limit" when he raised objections. The accountants, the Coopers and Lybrand office in Pittsburgh, gave AHERF a clean opinion in 1997, even though a large loan later had to be restated. The hospital chain then fired Coopers just before the next audit could be completed, slyly citing concerns about its reliability. (Coopers had been found guilty of negligence in 1996 in the Phar-Mor pharmacy fraud and embezzlement case.) But the biggest problem of all at AHERF was the chief executive, Sherif Abdelhak, and the degree of protection Abdelhak enjoyed from the aging William Penn Snyder III, the patriarch of the hospital from which the chain grew.

When the board finally awakened to the extent of their empire-builder's machinations, in April 1998, they established a board-level loan committee; when Abdelhak went behind their backs again, they fired him. The problems at Harvard Pilgrim look to be pretty milquetoast stuff, compared to this. At least so far, it seems mainly a tragedy of hoping the problems would go away. consulting for the military and taught at Harvard University. Now he works in the Pentagon as undersecretary of defense for acquisition, technology, and logistics.

The job makes him, in effect, the single largest customer for Raytheon, the struggling Lexington-based defense contractor where Gansler once designed Hawk ground-to-air missiles. It also makes him a key salesman for Raytheon, which relies heavily on federal help to market its weapons overseas. Lately, such overseas military sales have slowed, sending Raytheon's shares and profits into a tailspin that will be apparent today, when the company announces its fourth-quarter earnings. Competitors like Lockheed Martin Corp. face crises of their own, ruining what was supposed to be a glorious era for military contractors following a round of defense industry mergers.

Bank to end no-fee checking Ex-USTrust clients face fees, minimum balances 1997 1998 1996 SOURCE: Raytheon GLOBE STAFF CHART NOW BOARDING: RETAILER 'Go Go Years' offer lesson for today's Internet frenzy wims fc BOSTON CAPITAL I THE PRICE OF AMERICA ON-line's stock has dropped quite a bit since the company announced its intentions to buy Time Warner. So far, the drop isn't much to worry about But the possibility of a steep decline got us tJiinking: What would happen to the all-stock deal and others just like it if investors sud By Bruce Mohl GLOBE STAFF Citizens Financial Group notified its newly acquired TJSTrust customers over the weekend that their popular free checking accounts will last only about one more year before being phased out In a mailing to about 300,000 former US-Trust customers, the bank said it will assign new Citizens accounts to them on Feb. 18. Those TJSTrust customers with free, no-minimum-balance checking accounts will see all fees and minimums associated with their new Citizens accounts waived for a year. Those with other USTrust accounts currently will have fees waived until April 19.

The changes mean some former USTrust customers will have to increase their balances or business dealings with Citizens to avoid monthly fees ranging from $7 to $20. They will also see changes in how minimum balances are calculated and in some cases be hit with a new $1.50 fee for using certain other banks' ATMs. USTrust customers paid no fees to US-Trust if they used another bank's ATMs. As Citizens customers, they will pay $1.50 to Citizens if they use another bank's ATMs, although the fee is waived for "circle account" customers who keep at least $5,000 in the bank. "A lot of consumers are going to be hurt by this," said Deirdre Cummings of the Massachusetts Public Interest Research Group.

"It's another example of the negative impact of the merger mania that's taking place in the banking industrv." FEES, Page Dll STEVEN SYRE CHARLES STEIN denly lost faith in the new economy and decided the incredible multiples accorded to companies like AOL weren't really justified? Once upon a time, that very scenario played itself out on Wall Street And while history may not repeat itself, a trip back in time still can provide some interesting perspective on today's developments. Set the way-back machine for the 1960s, Sherman. We're going back to what the writer John Brooks called "The Go-Go Years" on Wall Street It was a time of great excitement The American economy was booming and so were stock prices especially for brand new companies that caught the fancy of investors. BOSTON CAPITAL, Page Dll GLOBE STAFF PHOTO I WENDY MAEDA The new Staples store at Logan Airport's Terminal is part of the Framingham chain's strategy to offer customers more choices and convenience. Story, D5..