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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Night Writer who wrote (73740)	12/14/1999 12:14:00 AM
From: Piotr Koziol	Respond to of 97611

NW, victor and All, here's a credible explanation for the Philips LBO rumors, as discovered by sb20011 from the CPQ club on Yahoo! . It sort of explains why there must have been numerous sightings of CPQ and Philips executives visiting each other :^) ******************************************************************** Compaq Computer Corp. Chief Executive Officer Michael D. Capellas isn't ruling out computer-service acquisitions as the computer maker advances an Internet infrastructure and access strategy, he told Dow Jones Newswires Monday. Capellas, who was appointed CEO in June following the ouster of former CEO Eckhard Pfeiffer, said the company believes services will be increasingly important to electronic-commerce customers. "The more immature the market is, the more important services are to it," he said in an interview at the company's Houston headquarters. Compaq has been linked in market rumors to corporate personal-computer dealer Inacom Corp. (ICO), based in Omaha, Neb., and Origin B.V., a division of Philips Electronics. Shares of Inacom (ICO), which in October named former Unisys Corp. executive Gerald A. Gagliardi as president and CEO, rose $1.313, or 15%, to settle at $10.313, following a 26% rise on Friday. An Inacom spokeswoman couldn't be immediately reached for comment. ********************************************************************

To: Night Writer who wrote (73740)	12/14/1999 12:58:00 AM
From: rupert1	Read Replies (1) \| Respond to of 97611

NW: I prefer to use the term asset stripping rather than LBO. Philips might want to retain some of the "core" pieces of COMPAQ as a going concern, and will raise some of the money to "pay" for those pieces retroactively by asset stripping in the way I described. COMPAQ did this to some extent with DEC. The DEC deal was done in 1998 but this twiddly business with CMGI and AV still going on in 2000 (and not to be finished until the CMGI and AV lock-up period ends probably in 2001 or 2002) is all part of the process of retroactively financing the DEC acquisition. Buying a position of 5% in an acquisition target is hardly "amateur". I would say it is the epitome of professionalism. It gives you a bona fide, increases your negotiating position, creates huge cost savings if the bid works, and pays for the bid if it fails, usually with a nice profit from the greenmail effect. Since you have already conceded that CPQ would fight a takeover why would Philips sit down with management except to impress its determination to succeed - its not a game of cricket. You lost me on your valuation of COMPAQ's goodwill at $20-30 a share. That is so dependent on Philips intentions. If it intends to continue operations under the COMPAQ brand name in those pieces of the business which interests it - then of course the goodwill (and the intellectual property) is worth something. That is why they offer $50. But by the time they complete the process of asset stripping, after the acquisition, they can reduce the net cost to $30, $20, $10 depending on what they get for selling the assets or those pieces of the business they sell or float as going concerns. And don't forget the value to the acquirer of tax credits also acquired and created in the acquisition. But if Philips has no long-term interest in the COMPAQ brand and intends to retire it in the way COMPAQ has retired the DEC and Tandem labels, then the goodwill is not worth anything like the value you suggest. Furthermore, the purchase price is not decided by the management of the target company appealing to some objective valuation criteria - it is decided by the shareholders who accept or reject an offer to purchase. You can argue that COMPAQ is theoretically worth $75 or $175 but the price will be $50 if Philips offers it and the shareholders accept. As for saying they dont't do those kind of hostile takeovers any more - who says? America is not the world and Philips is not an American company. Agressive asset stripping, and hostile acquisitons is not Americana. It was honed to a fine art in the 1960's and 1970's in the UK and exported to the US. As a result of an epidemic of greenmailers in the US, companies learned to use "poison pills" and became skillfull in defending against takeovers, so techniques have changed. But I believe that if you examine many so-called friendly or agreed acquisitions in recent years you will find that many of them were conducted with an iron hand within a velvet glove. There was much hostile coercion brought to bear on the target management by the acquirer. And, to complete the circle of this argument, the first body blow is often that the acquiring company has already assembled 5% of the shares in the open market and has already developed "understandings" with institutions holding large blocs of shares. On the specific point of arbirtrage: you are using a highly specialised definition. There is nothing in the regulatory process to prevent anyone engaging in arbitrage at any time. If an offer by Philips had been accepted it would be up to the arbitrageurs to decide what risk there was for them in offering to buy shares on the open market. And since they are sophisticated people, they would be quite sure from the very outset of the chances of the deal consummating. To buy the volumes they would need, they would have to offer an attractive price to shareholders as soon as possible. This debate is all very intersting - but a bit hypothetical since it is based on a rumour.