Analysts question odds of Syncor-Cardinal merger. (Media & Technology).

SYNCOR International Inc.'s planned merger with Cardinal Health Inc. may be scrapped, say analysts who worry that the discovery of $500,000 in alleged illegal overseas payments by the firm, a deep drop in stock price, a subsequent flurry of stockholder lawsuits and its nearly $30 million loss last quarter may be too many obstacles for the company to overcome.

Andrew Speller, an analyst with A.G. Edwards, said Syncor's troubles may unravel its best-laid plans.

"There's a good chance that the merger won't go through," he said. "Cardinal realizes its reputation is on the line and it may decide to back out because of these ethics issues."

Syncor disclosed Nov. 6 that its investigators found that questionable payments were made at company facilities in Asia, Latin America and Europe dating back to 1997. There was also evidence that the company's subsidiaries may have broken tax laws and laws regulating competition, the company said.

Eric Coldwell, an analyst with Prudential Financial Inc., said the merger will likely fall through if wrongdoing is also found in the company's U.S. operation, which is also under investigation by a Syncor special committee.

"We still see the potential that additional illegal activities may be discovered in the U.S.," he said.

Already a number of class action lawsuits have been filed against Syncor by shareholders seeking damages for the sudden drop in stock price in the days following the announcement that it would investigate the alleged illegal payments. Syncor shares dropped from a closing $35.92 on Nov. 5 to $22.50 the next day. Syncor's stock traded at $26.21 on Nov. 22.

Syncor officials would not comment.

Damon Ficklin, an analyst with Morningstar Inc., said the lawsuits may further complicate matters for Syncor, which last week agreed to renegotiate terms of the merger.

"The merger is not that crucial to Cardinal, but it is a major deal for Syncor because of its financial situation. It has a lot to lose if it collapses," Ficklin said, referring to Syncor's limited ability to market its radiopharmaceuticals.

The company is in the midst of being acquired by Ohio-based Cardinal Health, which had agreed to pay about $1 billion for the firm. That deal, however, could be derailed if Syncor is unable to disentangle itself from the illegal payments controversy.

So far the company is liable for an estimated $2.5 million in potential fines from the Securities and Exchange Commission, now in discussions with company officials.

Syncor's disclosures came on the same day its third-quarter earnings were released, showing that, for the quarter ending Sept. 30, the company lost $28.9 million on $192.2 million in sales, compared to a year earlier when it reported $7.8 million in net income on $149.8 million in sales.

The loss is due primarily to the $31.3 million charge it took for discontinuing its medical imaging unit, Comprehensive Medical Imaging Inc. Syncor is currently looking for buyers for the unit.