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Technology Stocks : STAR Telecommunications (STRX)
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To: DD™ who wrote (292)8/17/1998 11:30:00 AM
From: BlackCat  Read Replies (4) of 780
 
Bad news regarding the PT-1 acquisition:

Last week, the FCC rejected pooling treatment for STAR's
acquisition of PT-1. The company has appealed and the appeal was
also rejected. While STAR management has not made an official
announcement, we believe that the most likely outcome (90%
probability in our view) is for a purchase transaction, which
would probably close by the end of September.

The FCC's decision was based on a rule that prohibits pooling
treatment where a stock distribution has been made and there was
contemplation of a transaction. PT-1 bought out a founding
partner with stock in November of 1997. While PT-1 indicates it
was not considering an M&A transaction at the time, the FCC has
chosen to take the strictest interpretation and consider this a
stock distribution with contemplation.

This leaves STAR/PT-1 with three options: 1) delay the
transaction until the spring, when enough time will have elapsed
since the distribution to allow a pooling transaction, 2) proceed
with purchase accounting or 3) dissolve the transaction. Both
companies have soundly rejected consideration of the latter
option. We believe, based on discussions with both management
teams that the transaction will go ahead with purchase accounting
treatment.

No matter what, this will negatively effect 1998 earnings estimates.
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