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HLSH has gone south for good, will not return to health



Dear Mr. Berko:

I owned 500 shares of HealthSouth that cost me $18 a share and now trade at about 12 cents a share. It used to trade on the New York Stock Exchange under the symbol HRC. Can you tell me the new symbol and on what stock exchange it trades?

I’d like to buy 50,000 shares at 12 cents, which will cost me $6,000. If the stock moves from 12 cents to 35 cents, I’ll be even, and if it goes to $1 a share, I’ll be way ahead of the game. Do you think this is a good idea? And can you tell me how just a few people in such a big public company could create such a terrible mess at HealthSouth, considering that everything has to be reviewed by the company’s board of directors.

H.A.  Massillon, Ohio

Dear H.A.:

I think Genghis Kahn and Rembrandt have a better chance of rising from the dead than HealthSouth does of rising from its current price. The new symbol for HealthSouth Corp. is HLSH, and it trades on the “pink sheets” at 12 cents a share. In April 2001, when HLSH was trading at $14, I was the after-dinner speaker at a charity fund-raiser in Birmingham, Ala., HLSH’s hometown. Everyone in Birmingham was in love and in lust with HealthSouth.

Today, Birmingham is in mourning, and its local pride and joy, the largest provider of outpatient and rehabilitative health-care services in the world, has imploded in shame and disaster. The blame belongs to Richard Scrushy, the company’s founder, who is responsible for the mushrooming accounting scandal in which earnings were overstated by at least $1.4 billion.     The blame also belongs to HealthSouth’s enabling board of directors that permitted and encouraged Scrushy to deceive hundreds of thousands of investors. Finally, the blame belongs to Ernst & Young, HealthSouth’s longtime auditor, which may be as culpable as the board of directors and as guilty as Scrushy.

I think it’s a lousy idea to buy 50,000 shares of HealthSouth. That company doesn’t have a snowball’s chance in boiling water of returning to prominence. The $1.4 billion earnings overstatement may be the beginning of other problems that have yet to surface. The Justice Department believes that HealthSouth may be guilty of abusing Medicare regulations relating to its provision of physical therapy. There may also be allegations of harassment, failure to pay overtime and discrimination charges.

Meanwhile, HLSH has a highly leveraged balance sheet, including about $400 million in convertible bonds that came due this month and have not been redeemed. The company does own some attractive properties, however. As HLSH proceeds through the bankruptcy process, those properties will be sold off to competitors such as Health Management Associates, Davita, Tenant Healthcare and HCA.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or visit his Web site at www.berkoradio.com.  (c) Copley News Service  Visit Copley News Service at www.copleynews.com.

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