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JUDGMENT DAY AT BAUSCH & LOMB
Near the end of an acrimonious, seven-hour meeting on Dec. 6 between investors and Bausch & Lomb Inc., a representative from one of the company's largest shareholders stood up to address B&L Chairman Daniel E. Gill. Over the past few years, he said, the optical company had lost $1 billion worth of market capitalization. Its earnings were below 1991 levels. It had ceded market share in key sectors. It was the subject of a Securities & Exchange Commission investigation into questionable accounting practices uncovered by BUSINESS WEEK. Yet Gill continued to cling to power. "What else has to happen," he asked Gill, "for you to resign?" After a stunned silence, the chairman stammered that he would remain until he lost the confidence of B&L's board.
That statement had a shelf life of exactly one week. On Dec. 13, B&L announced that Gill, 59, would retire by yearend, to be replaced by outside Director William H. Waltrip as interim chairman and CEO. Gill says it was entirely his decision to leave. Waltrip says Gill, who had run B&L since 1982, had discussed retirement for some time and wasn't forced out at a Dec. 12 board meeting. But most B&L insiders believe Gill didn't want to go. Running B&L "was Dan's life," says a former longtime executive. Indeed, Gill recently told a top B&L manager he wanted to stay to clear his name.
But fast-moving events seem to have forced Gill's hand, starting with a cover story in BUSINESS WEEK's Oct. 23 issue that questioned whether Gill's insistence on double-digit growth at almost any cost had led B&L executives to falsify invoices and ship unwanted goods to customers while secretly assuring many that they didn't have to pay for them. Soon after the article, the company posted disappointing third-quarter results, hammering B&L's stock. Investors had been promised a 1995 turnaround after a disastrous 1994, in which earnings before charges tumbled 54%, to $88.5 million, on revenues that fell 1%, to $1.9 billion.
Meanwhile, B&L's long-somnolent board was showing signs that it was souring on Gill. Outside directors launched a probe into the BUSINESS WEEK allegations and signaled that it wouldn't be a whitewash by hiring Gary G. Lynch, a tough-minded former chief of enforcement for the SEC, to run the investigation.
Gill's main hope was a favorable reception at the crucial Dec. 6 meeting in New York with investors and analysts. In the weeks leading up to it, top B&L executives worked feverishly to draft a fresh turnaround plan. But the day before the meeting, B&L announced fourth-quarter earnings would be just 40 cents to 50 cents a share, well below the 76 cents analysts had been expecting. B&L's stock dived again, and livid shareholders phoned directors to demand Gill's head. To appease them, Gill announced a new round of expense cutbacks. He also froze top management pay and offered to take a 10% cut in his $1 million salary.
At the Dec. 6 meeting, Gill and his lieutenants presented their new growth plan. At its heart was a huge bet on reviving B&L's flagging contact lens business. Once the industry leader, B&L had tumbled to No.3 as disposable lenses pioneered by Johnson & Johnson stole market share. B&L proposed spending $200 million--half its capital investment--over three years on new technology to match J&J's.
LINGERING DOUBTS. But many attendees doubted Gill and his team could pull it off. One concern: J&J's cost advantage and superior marketing skills. The last hour of the meeting was dominated by hostile questions from investors, including queries about B&L's corporate jets, its costly new headquarters building, and lack of a succession plan. Investors who had been clamoring for Gill's ouster emerged feeling triumphant. A week later, when Gill's retirement was announced, the stock jumped 7.1%, to about $40.
Waltrip, 57, a former CEO of Purolator Courier Corp., insists he will only be an interim CEO. The main inside CEO candidate is William M. Carpenter, 43, a former executive with British consumer company Reckitt & Colman PLC and J&J, who was elevated to president on Dec. 13. As for Gill, he still faces scrutiny by the SEC, which is focusing on what he knew about shenanigans at B&L's contact lens unit. Waltrip also vows to continue the board probe, which could lead to more action against insiders. The B&L tale may not be over yet.By Mark Maremont in Boston