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RISCORP'S REVERSAL // It goes public; stock goes south

Sarasota-based RISCORP Inc. plunged into the public spotlight this year and quickly discovered just how hot it can get.

The company, the second-biggest player in the state's workers' compensation industry, is one of the worst-performing new stock offerings of the year. RISCORP's transformation from successful private business to colossal stock flop is proof once again that even in a bull market, going public is no guarantee of success for a company or its investors.

When RISCORP was private, founder William D. Griffin, a big investor in the Tampa Bay Devil Rays, paid himself $6-million a year and answered to no one. But when any company goes public, it has to disclose all kinds of news and numbers it used to keep secret.

So far, Wall Street does not like what it has been learning about RISCORP. Investors who thought they were buying shares in a hot growth company in a $60-billion industry have been hit with one bombshell after another.

RISCORP has been subpoenaed by a federal grand jury investigating illegal campaign contributions. It has been sued by former business associates in Miami and shareholders in Tampa. Its profits have dropped dramatically and the company is offering no hope for a turnaround any time soon. Now RISCORP, which went public with big expansion plans, even says the company might be sold.

Just six months ago, investors were paying as much as $24.50 for RISCORP shares. These days they can get it for 82 percent less. Friday the stock closed at $4.37{ a share.

On top of all that, coverage in the hometown Sarasota Herald-Tribune has RISCORP executives squirming. They even hired a private investigator to try to pin down the source of some of the newspaper's information.

"This has been such a rapid and tragic fall," said Irv DeGraw, Sarasota-based publisher of the IPO Insider, a newsletter that follows new stock offerings.

A bunker mentality appears to have taken over at RISCORP, which employs 700 people, most of whom work at the company's 11-story headquarters in downtown Sarasota. Repeated requests for an interview from the Times got no response.

"They just have this feeling that the Sarasota Herald-Tribune is out to get them," said Kerry Kirschner, head of the Argus Foundation, a Sarasota-based public policy group financed by businesses, including RISCORP.

"These people are shell shocked," he said. "They feel they have been wrongly treated and the Herald-Tribune feels they did their job. I hope for the community's sake we can get through this. I don't think it's good for anybody."

"A company that until very recently was private would naturally have a hard adjustment to being examined as closely as we've examined RISCORP," said Herald-Tribune executive editor Diane McFarlin.

Among the things the newspaper reported was that Griffin-owned companies borrowed, then repaid, nearly $9-million from a government trust fund managed by RISCORP. Sarasota County Commissioner Charley Richards is a paid trustee of the trust fund, and it was Richards who cast the deciding vote when the County Commission voted to buy some of Griffin's downtown property for a new county library near RISCORP headquarters.

RISCORP was so upset with the newspaper's coverage that it hired a private investigator to question people who had been interviewed by a reporter, McFarlin said. She said Griffin told her the company was trying to find out if a former employee was leaking information. RISCORP also encouraged employees to cancel subscriptions to the paper, using a printed form. The Herald-Tribune got about five of the forms, McFarlin said.

Meanwhile, RISCORP president James A. "Tony" Malone blamed the news media for a dropoff in RISCORP's insurance sales in Florida last quarter while sales were rising in other markets.

"Any time you're dealing with negative press, it's something your agents have to sell through," he told analysts and money managers in a telephone conference call last month. He also said profits fell as a result of other factors, including accounting adjustments on insurance policies sold to companies that had lower-than-anticipated claims.

His explanation did not satisfy Roger Bensen, a portfolio manager with Number One Corp. in Norwalk, Conn., who recently sold the stock at a loss. He said RISCORP executives gave no hint of problems at a conference just three days before the quarter ended.

"In all likelihood there are more problems at the company," he said. Bensen said the announcement that the company might be up for sale is particularly troubling.

"That is something that you just don't do under these circumstances if you think the company has real value," he said. "You would think if these people really believed in their business, they would say "This is ridiculous'

" and start buying back shares."

"Entrepreneur of the Year'

Until this year, RISCORP was a spectacular success story. Griffin started out as an analyst working on insurance issues in the Florida Legislature, and then became a top executive at FCCI Mutual Insurance Fund, the state's largest workers' compensation insurance provider. When FCCI and Griffin parted ways in 1988, he started RISCORP with members of the Florida Chamber of Commerce as his customers.

Last year, RISCORP's revenues soared to $166-million as it branched out from simply administering workers' compensation funds to operating its own insurance company. It specializes in managed care programs designed to get injured employees back to work.

In June, the 47-year-old Griffin won the "Florida Entrepreneur of the Year Award" in the services category of the awards program sponsored by Ernst & Young. Griffin said at the time that entrepreneurism is all about "seizing opportunity without regard to financial resources."

RISCORP has made him a very wealthy man. In addition to compensation of $6.4-million last year, Griffin received about $64-million from this year's stock offering, after expenses. According to the Herald-Tribune, he has a jet, a yacht, a waterfront estate in Sarasota, a $2-million condo in Colorado and a skybox at Florida State University football games.

The Tampa Bay Devil Rays said Griffin made a substantial investment in the baseball team, which has been paid in full, but would not reveal the amount. Griffin and RISCORP also are major contributors to youth sports and charities in the Sarasota area.

Griffin's vision for RISCORP included expansion, which was supposed to be made easier when the company had publicly traded stock it could use to buy other companies.

However, the collapse of the stock price makes it less likely that potential sellers will be willing to accept RISCORP shares as payment. Also, it threatens to substantially increase the price of two acquisitions that already have taken place, because of contractual guarantees to the sellers.

An uncertain future

Bad news often gets a swift and punishing response from the stock market, where many money managers follow the credo "Sell first and ask questions later." Failing to meet analysts' earnings expectations by just a penny or two per share can be enough to send a stock into a nose dive.

With RISCORP, a series of bad-news surprises cost the company the confidence of money managers. Because the stock kept falling, even bargain hunters who bought shares after the initial decline have been left with big losses.

The first blow to shareholders came Oct. 4 when state Insurance Commissioner Bill Nelson ordered an 11 percent cut in workers' compensation premiums next year.

The second came four weeks later when the company acknowledged its involvement in a grand jury investigation into illegal campaign contributions. RISCORP and related companies have been big contributors to Florida candidates and political parties, giving more than $200,000 this year alone. The company might be the target of the investigation or merely a source of information, but a lot of big institutional investors decided not to wait around to find out.

The third strike, from which the stock is still reeling, was the announcement two weeks ago that profits dropped 72 percent last quarter and that the company is considering putting itself up for sale.

Stock analysts who were touting the company as a great investment just a few months ago were not willing to discuss RISCORP with the Times.

"I'd rather not be in print on it," said John S. Penshorn, vice president of Minneapolis-based Piper Jaffray Inc. He called RISCORP a "strong buy" in May.

Piper Jaffray was one of three brokerage firms that managed RISCORP's $205-million public offering last February. Analysts for the other two _ Smith Barney Inc. of New York and Montgomery Securities of San Francisco _ did not return telephone calls. All three firms are defendants in a shareholder lawsuit claiming that documents filed in connection with the offering were false and misleading.

RISCORP also is being sued separately by the former owners of Commerce Mutual Insurance Co., who claim RISCORP misled them when it acquired the insurance company last year.

All that adds up to continuing uncertainty about the company and its future.

Can RISCORP recover the market's confidence? DeGraw, the IPO Insider editor, said he thinks RISCORP executives are in over their heads.

"They had a wonderful run as a claims processor and an administrator and they were doing extremely well at that," he said. "But the skill sets to run an insurance company are significantly different from the skill sets required to run a claims processor."

Also, the grand jury investigation has left a cloud over the company, DeGraw said.

"This is absolutely going to distract them from the business they're already having trouble running," he said. "Insurance is such a trust-driven industry that the minute you start getting negative connotations about your company out there, you start losing business."

DeGraw said RISCORP should bring in a well-known outsider with a top reputation and "impeccable credentials" to lead the company. RISCORP has named three independent directors, including retired Florida Power Corp. executive George E. Greene III, to evaluate the company's options for the future.

To win back the market's confidence, RISCORP also needs to do a better job of communicating with analysts and with the media, DeGraw said.

"The market is very unforgiving of surprises," he said. "This management did not have public company experience prior to this and they are still learning about their responsibilities."

For RISCORP and its shareholders, the tuition has been very expensive.

RISCORP

CHRONOLOGY

William D. Griffin starts RISCORP to administer workers' compensation insurance fund for Florida Chamber of Commerce's member companies.

1993

Florida Chamber Fund becomes Commerce Mutual Insurance Co., owned by policyholders.

1994

RISCORP creates health maintenance organization, moves into managed care.

1995

RISCORP takes over Commerce Mutual, creating RISCORP Insurance Co.

1996

Feb. 28 - RISCORP goes public in 10.8-million share offering at $19 a share. After expenses, RISCORP gets $128-million, Griffin gets $64-million.

March 29 - Piper Jaffray calls RISCORP "strong buy."

April 2 - Former Commerce Mutual policyholders sue RISCORP and key executives for racketeering and breach of fiduciary duty in takeover of company.

Montgomery Securities says "buy.'

April 3 - Smith Barney says "buy.'

May 2 - Stock peaks at $24.50 a share.

Oct. 4 - Insurance Commissioner Bill Nelson cuts workers' comp premiums 11.7 percent for 1997.

Oct. 7 - Piper Jaffray cuts '97 earnings forecast.

Oct. 31 - RISCORP says company and two executives subpoenaed in federal probe of campaign contributions. Smith Barney cuts opinion to "neutral.' Stock dips to $4 a share.

Nov. 1 - Piper Jaffray cuts opinion to "buy.'

Nov. 14 - RISCORP profits slip; company reveals it is considering sale, merger and other options to "maximize shareholder value."

Sources: Staff research, Bloomberg Business News

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