Compaq to Acquire Digital Corp; Outlook to Negative by S&P
NEW YORK, Jan. 26 /PRNewswire/ -- Standard & Poor's today revised its outlook on Compaq Computer Corp. to negative from stable, following the
announcement that Compaq will acquire Digital Equipment Corp. for $9.6 billion.
Standard & Poor's affirmed its single-'A'-minus corporate credit rating and bank loan rating, and its 'A-2' commercial paper and short-term corporate credit ratings
on Compaq. Standard & Poor's also placed Digital Equipment Corp.'s ratings on CreditWatch with positive implications (See list).
The outlook change reflects Standard & Poor's concerns about integration issues, despite Compaq's strong financial profile. The ratings reflect Compaq's
consistently strong financial performance and financial flexibility, despite the extremely competitive nature of the personal computer (PC) hardware industry. Houston,
Texas-based Compaq is the leading worldwide manufacturer of PCs and PC systems. The acquisition of Digital Equipment (about $13 billion in revenues) will
expand Compaq's product line breadth by adding global customer service capabilities.
The acquisition will be financed with a combination of $4.8 billion in cash and 150 million shares of Compaq common stock. Pro forma combined cash balances in
excess of $8.5 billion provide adequate liquidity, even after the potential for cash restructuring costs, which Standard & Poor's has assumed will likely be required.
Compaq's balance sheet and cash flow characteristics should remain very strong, despite Digital's lower profitability levels. Pro forma combined operating margins
(before depreciation and amortization) are about 11%.
OUTLOOK: NEGATIVE
The outlook reflects Standard & Poor's concerns about potential acquisition integration issues given the size of the operations being combined, and the potential for
management distraction in a very fast paced industry environment. A sustained decline in profitability and cash flow measures could lead to a downgrade, Standard
& Poor's said. -- CreditWire
DIGITAL RATINGS PLACED ON CREDITWATCH:
Corporate credit rating BB+
Senior debt rating BB+
Preferred stock rating BB-
SOURCE: Standard & Poor's CreditWire
Don't know if this has been posted, but thought I'd put it here anyway.
This doesn't look good.
BC |
