Drawing on credit line sends Comdisco down

Shares of Comdisco Inc., one of the Chicago area's largest andmost established tech companies, plunged Tuesday as the companytapped into its credit line and hired a pair of heavyweightconsultants to help set a new course.

Comdisco, the Rosemont company that leases computer equipment andprovides technical services, was hammered after it drew down $880million from its credit line, mostly to offset $825 million oncommercial paper loans that were coming due.

Comdisco stock lost more than 60 percent of its value Tuesday,closing at $2.55 a share, down $4.53, its lowest point in more than adecade. It topped $46 a share in March 2000.

"The market was responding to Comdisco drawing down its loans,"said T.K. MacKay, a stock analyst with Morningstar in Chicago. "It'snot productive for shareholders. (Comdisco is) simply treading waterwhile carrying $6 billion (in debt) on its back. You can't stayafloat for long that way."

Moody's Investors Service downgraded the ratings of Comdisco andan affiliated company because of Comdisco's "sharply reducedfinancial flexibility." Moody's also said it has left Comdisco's long-term ratings on review for possible further downgrades.

At the same time, Comdisco announced it hired Goldman Sachs GroupInc. and McKinsey & Co. as advisers. Mary Moster, vice president ofcorporate communications at Comdisco, said the new chief executive,Norman P. Blake Jr., 59, who was hired in February when NickPontikes, 36, stepped aside, had previously announced the companywould be going through "a comprehensive review to put together thegame plan."

Mark C. Jordan, an analyst with A.G. Edwards & Sons in St. Louis,portrayed it as a routine matter to help Blake, a General ElectricCorp. alumnus, plan the company's future.

"It's an issue of looking at all of the strategic alternatives,"he said. "A new CEO needs a top-to-bottom analysis to decide ifthey're in the right businesses."

MacKay said Comdisco likely will narrow its focus to its moresuccessful businesses, such as its traditional computer equipmentleasing business and its data recovery unit, while possibly sheddingits more troubled operations.

Jordan said Comdisco's unit that leased computers to start-ups washit hard by the downturn in the tech economy and subsequent shutdownof the initial public offering market.

"Comdisco could benefit from more focus," he said.

"It is premature to comment or speculate what actions will betaken," Comdisco's Moster said. "Our advisers have been charged withlooking at all the alternatives."

MacKay said Comdisco is fundamentally sound, but the company,which was an early investor in Internet stocks, has been infectedwith Internet fever. "This isn't a fly-by-night company that came tomarket in November 1999. They've been around forever. (Comdisco wasfounded in 1969). Their attempts to diversify have been very risky."

The company last year wrote off $322 million on its investment inPrism, a high-speed data service. As a result, Comdisco lost $67million in fiscal 2000 compared with earnings of $70 million infiscal 1999.

As Comdisco's stock hit a 52-week low, MacKay said some investorsmight be tempted to "bottom fish" because the company has a solidbusiness and has been in business so long.

"It may be trading at $2.50 per share, but that doesn't mean itwon't go to zero. It's a very risky situation," he said. "The stockhas become a penny stock and is extremely volatile. It's too volatilefor institutions to touch it. Blake may work things out, but it'sanybody's guess whether shareholders will come out ahead."