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To: Mohan Marette who wrote (68779)	10/2/1998 9:49:00 AM
From: TechMkt	Read Replies (1) \| Respond to of 176387

Is CPQ in trouble??? What can the SEC do to them? Fez ___________________________________ Herb on TheStreet: Will SEC's Hunt for Excessive Takeover Charges Snare Compaq? By Herb Greenberg Senior Columnist 10/2/98 6:30 AM ET Compaq's (CPQ:NYSE) $9 billion takeover of Digital Equipment was the largest ever in the computer industry, but some skeptics have wondered whether the deal would've been done if Compaq hadn't been able to write off $3.2 billion of so-called "in-process" technology. Hard to say, but what's clear is that the SEC has put charges for anything "in-process" on the front burner. In-process technology or research and development refers to projects not yet completed when a takeover occurs. Several smaller deals, including those by Mallinckrodt (MKG:NYSE), for its purchase of Nellcor-Puritan-Bennett, and Wang (WANG:Nasdaq), for its acquisition of an Olivetti unit, have come under scrutiny as the SEC takes a closer look at accounting rules. But the most visible case, so far, involved America Online (AOL:NYSE), which agreed to reduce the size of an R&D charge it had planned to write off related to its acquisitions of Mirabilis. Originally AOL had hoped to write off a large chunk of the $287 million purchase price. After talks with the SEC, that charge was subsequently reduced to around $60 million, according to a statement by AOL on Monday. A day later, Worldcom (WCOM:Nasdaq) disclosed in an SEC filing that it would cut its expected write-off for in-process R&D by more than half to $3 billion on its $40 billion acquisition of MCI. It cited "new guidance" from the SEC, specifically referring to a letter written by SEC Chief Accountant Lynn Turner to the American Institute of CPAs. In that letter, Turner laid out eight "practice issues and questions" that the SEC believes the AICPA should consider as it develops guidance related to in-process R&D. "Of paramount importance," Turner wrote, "is the responsibility of the company and its independent accountant to evaluate the reasonableness of the results of whatever methodology is applied." Which brings us to Compaq. Frankly, it's difficult to tell from its SEC disclosures whether the Digital write-off conflicts with any of the SEC's concerns. A spokesman says the company hired an outside appraiser "to come in and assign value to the assets and establish the amounts of what the write-off would be for in-process R&D. Our auditor, Price Waterhouse, reviewed it as well. And we worked closely with the SEC, which reviewed that issue for a month. We did as good a job as we could to make sure it was accurate." And it very well may be, just as the prior review by the SEC may have been enough. But the Digital deal was completed in June; Turner's letter, detailing the SEC's new war on excessive charges, wasn't written until Sept. 9. The SEC's staff, as a rule, doesn't re-review financial statements, though it depends on the thoroughness of the earlier review and just what was reviewed.