RealTime IT News

Comdisco Files for Chapter 11, Conducts Overhaul

Following four months of serious contemplation of its fiscal situation, service provider Comdisco Inc. Monday has decided to file for Chapter 11 bankruptcy protection for its U.S. concerns, sell its technology service division to Hewlett-Packard Co. for $610 million, and trim 200 jobs from its workforce.

Comdisco is known primarily as a technology leasing company, and is a go-to alternative should disasters strike IT businesses; contingency planning and disaster recovery are its specialties.

With regards to bankruptcy protection, Rosemont, Ill.'s Comdisco and 50 of its domestic U.S. subsidiaries have filed for relief on a "fast-track" basis, meaning Comdisco hopes to stop any bleeding until early 2002, when it plans to emerge to get back on its feet. The firm, which filed its plea in the U.S. Bankruptcy Court for the Northern District of Illinois, hopes to sell its Availability Solutions to HP under Chapter 11, where it may resolve short-term liquidity issues. Comdisco has also filed a motion seeking the approval of bidding procedures to conduct a sale auction for its leasing business units.

The deal with HP allows that Comdisco will cede its U.S. operations and the stock of its subsidiaries in the United Kingdom, France and Canada to the hardware giant. The agreement excludes the purchase of the stock of subsidiaries in Germany and Spain, as well as other identified assets, including Network Services and IT CAP Solutions. The Availability Solutions division services more than 3,000 businesses in North America, Europe and Asia.

The announcement does not by any means come out of the blue. The plan was revealed four months after Chairman and Chief Executive Officer Norm Blake arrived but not before the services and investment company announced a second-quarter net loss of $54 million, or 35 cents per share, in May. Comdisco's venture unit wrote off $100 million in unpaid loans and set aside an additional $206 million for future bad debts. Dragging it further down was the company's $30 million pre-tax charge to account for the decreasing value of assets from its defunct high-speed Internet service, Prism Communications Inc., and a $38 million charge for the shutdown of its network consulting unit, which it closed in January.

In April, Comdisco retained Goldman, Sachs & Co. and McKinsey & Co. to explore "options," a giveaway that a firm may be gearing up for a sale, but the question remained: which division? With that answer resounding throughout HP Monday, Comdisco also announced that it has received binding commitments for a $600 million senior secured DIP financing facility led by Citibank, N.A., Chase Manhattan Bank, and Heller Financial Inc. and arranged by Salomon Smith Barney Inc. and J. P. Morgan Securities Inc.

Lastly, Comdisco said it will reduce its staff by 200 positions, more than half of which will be at the corporate level. The outfit will continue to pay retained employees in the normal manner and their health benefits will continue during the restructuring process.