FUNERAL HOME GIANT PUTS MOVES ON RIVAL CHAIN : SERVICE CORP.'S TAKEOVER ATTEMPT OF LOEWEN BECOMES LESS FRIENDLY.

Byline: Allen R. Myerson The New York Times

Executives of Service Corp. International, the world's largest funeral home chain, say their $3.1 billion offer for their chief rival, the Loewen Group, is a friendly one.

But for the British Columbia-based Loewen, the bid is anything but neighborly, and the company has vowed to fend off the advances.

At stake for Loewen is its independence. At stake for Houston-based SCI is unchallenged leadership in making the American way of death as coolly efficient as the marketing of fast food.

It's equally clear that these two companies do not like each other.

In a prelude to the buyout bid, the corporate bad blood was evident as Loewen announced its $240 million acquisition of Whittier's Rose Hills Co., the nation's largest cemetery and funeral home.

Service said Loewen had overpaid once again on an acquisition, and that the company needed new owners to rein it in.

``We don't see that this transaction does anything for shareholders,'' said L. William Heiligbrodt. ``Before we made our bid, this was one of the things that spurred us forward - what other kinds of transactions this company might do.''

Loewen executives replied that Service was merely sour over Loewen's victory in the contest to buy Rose Hills, which demonstrated the virtues of Loewen's own, independent vision.

``I'm here to tell you, ladies and gentlemen, it's business as usual,'' Timothy Hogenkamp, Loewen's president, said to his managers in the Los Angeles area, later adding, ``We will do everything humanly possible to preserve what we have created.''

Loewen, its stock price and credit rating damaged by costly settlements of two lawsuits earlier this year, teamed up with the Blackstone Group, a New York investment firm, to buy Rose Hills. Loewen will contribute $95 million, including the value of 16 funeral homes and cemeteries in the area, for a 21 percent interest for the time being.

Loewen, the nation's second-largest funeral home chain, has independently signed or completed $715 million in other acquisitions this year. With Blackstone it has just closed the purchase of the Prime Succession funeral home chain for about $320 million. Loewen anticipates exercising its rights to buy out Blackstone's interests in both deals in about four years.

With death rates fairly static, Loewen and Service have aggressively pursued acquisitions as their major means of growth. Each had vied for Rose Hills.

Dennis Poulsen, chief executive of the Rose Hills Co., said the financial terms were roughly equivalent. But Loewen persuaded him and his board that it was more likely to preserve the autonomy of Rose Hills, which was founded in 1915.

Poulsen added, however, that Rose Hills was probably worth more to Loewen, which lacks the Service Corp.'s strong presence in Southern California.

Rose Hills conducts about 5,300 funerals a year, among them those of Richard Nixon and his family. The cemetery has more than 9,600 burials a year, on 1,350 acres, more than twice the size of Arlington National Cemetery.

Analysts questioned the financing of the Rose Hills deal.

``It occurs to me that (company founder, chairman and CEO) Ray Loewen is doing deals to do deals,'' said Steven Saltzman, an analyst at the Chicago Corp. ``I'd rather see Loewen pause to integrate what it has already.''

SCI executives say they will pursue their attempt to buy Loewen, despite the refusal of Loewen's board to even negotiate.

The boardroom feuds, the efficiency drives - in fact, the companies themselves - have largely been invisible to everyone but investors. At the 3,310 funeral homes, crematoriums and cemeteries that SCI has assembled, and at Loewen's 1,189 locations, mourners see the old familiar business names and premises.

Consumer advocates say that the savings generated by the companies' purchasing power and centralized controls are seldom passed on to customers.

Figures from some cities suggest that Loewen charges more for funerals than the national average of $4,624 and that SCI charges still more - findings the two companies dispute. SCI often serves wealthy neighborhoods; Loewen says it aims for competitive costs and superior quality.

In raw growth, SCI has outdistanced Loewen, and its shares consistently beat stock market averages. But until late last year, Wall Street was more impressed by Loewen Group's earnings growth, awarding its shares a higher earnings multiple.

Last September, Loewen threw a party at headquarters to celebrate his stock's rise to 20 times its 1987 offering price. No rival could even think of taking Loewen over at such a level.

But two months later, a Mississippi jury verdict drove the Loewen Group to the brink of bankruptcy. A lawyer representing an Ocean Springs funeral home owner laid out a tale of how Loewen tried to monopolize local markets, drive out competitors, then raise prices, sometimes marking up coffins to triple their wholesale cost.

In a case Loewen could have settled for a few million dollars, the jury delivered a $500 million judgment, including $400 million in punitive damages.

In the following weeks, Loewen Group's stock fell about 20 points, losing half its value. In January, a $175 million settlement staved off bankruptcy.

But now SCI saw its chance. On Sept. 11, Heiligbrodt began leaving messages at Loewen's office. He never heard back.

``I have more important things to do than to talk to my competitor every day,'' Loewen explained.

On Sept. 17, with Loewen's stock rising on rumors, Heiligbrodt put his offer into a letter to Loewen that was released to the public.

If Service gets its way and a megamerger ensues, consumer groups fear it will be bad news for a grieving public.

``This would be the equivalent to Pepsi and Coca-Cola merging,'' said Karen Leonard of the Funeral and Memorial Societies of America.

CAPTION(S):

2 Photos, 2 Boxes

Photo: (1) Robert Waltrip, chief executive offi cer of Service Corp., says a merger would bring in the best value to shareholders of Loewen.

(2) Ray Loewen says that Service Corp. can't handle the competition from his funeral home chain.

The New York Times

Box: (1) The Companies at a Glance

(2) Gold Plated

New York Times Service