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History and Case Study - Inacom Corporation

Former Fortune 500 and NYSE Listed Company (ICO)

Please Note: Most of the original links no longer work. I am leaving them here as a historical timeline of the events leading up to the Inacom bankruptcy.


OVERVIEW

On October 9, 1998, the public was informed that Inacom was buying Vanstar. The resulting company employed nearly 12,000 and was estimated to generate $7 Billion in revenue. On June 16, 2000, only twenty months later, Inacom filed chapter 11, closed the doors and terminated 'substantially all' employees. What happened? The articles below give some clues to what may have happened at Inacom.


HISTORY AND EVENTS

Note: Dates are the article or posted date and not the date of the event

ID Article / Post Date Event
1 February 26, 1997 http://themconnellgrp.com/results.html - Inacom Acquires HW Electronics Subsidiary - To Operate As Inacom Information Systems
2 June 2, 1997 http://www.cai.com/press/97june/inacom.htm - Inacom And Computer Associates Sign Broad Multi-Product Distribution Agreement
3 July 1997 http://www.crn.com/print-archive/19980518/789gover107.asp - Vanstar Acquires Sysorex Information Systems
3 July 1997 http://www.bolesco.com/transactions.htm - Vanstar Acquires Sysorex Information Systems (date reference document)
4 September 12, 1997 http://nasdaqnews.com/news/deletions/del_0997.html - Inacom (INAC) Leaves NASDAQ To Be Listed On NYSE
5 July 16,1998 http://www.techweb.com/wire/finance/story/INV19980716S0001 - Vanstar Warns Of Earnings Shortfall - Professional Services Down 20%. Company May Consider The Merger Or Sale Of Company
6 August 3,1998 http://www.techweb.com/wire/finance/story/INV19980803S0003 - Vanstar Warns Again Of Earnings Shortfall. Company Will Take $25 M Charge To Cut Jobs And Close Facilities
7 August 7,1998 http://www.techweb.com/wire/finance/story/INV19980807S0003 - Vanstar CEO Vows New Strategic Position - 500 Positions And Several Facilities To be Dropped
8 August 14, 1998 http://www.zdnet.com/zdnn/stories/zdnn_display/0,3440,343962,00.html - Inacom Buys Tobek Technical Services
9 August 14, 1998 http://www.techweb.com/wire/finance/story/INV19980814S0004 - Vanstar Sale Appears Imminent - Entex Cited As Possible Buyer. Fairfield, Inacom CEO, Says He's Not In The 'Turnaround Business'
10 August 31, 1998 http://www.crn.com/print-archive/19980831/805news013.asp - Reseller News Reports That Inacom Is Not Interested In Buying Vanstar. Entex, CA, CSC, Inacom, GECITS And CompuCom Listed As Possible Suitors.
11 October 9 ,1998 http://www.varbusiness.com/98Pages/buzz193.asp - Inacom Acquires Vanstar (VST) At An Estimated Cost Of $480 M
12 October 9 ,1998 http://www.zdnet.com/zdnn/stories/news/0,4586,2147354,00.htm - Vanstar Shareholders Receive .64 Shares Of ICO For Each VST Share - 43.26 M VST Shares Outstanding
13 October 9 ,1998 Inacom Share Price Falls. Analyst At Aspira Capital Management Concerned About The Combined Debt
14 June 21, 1999 http://aolcom.cnet.com/news/0-1007-200-343893.html?tag=st - Inacom Gets Arizona State Contract Valued At $50 M
15 July 6, 1999 http://www.techweb.com/wire/finance/story/INV19990706S0002 - Inacom Buys PC Division Of CTR
16 July 12, 1999 http://aolcom.cnet.com/news/0-1007-200-344691.html?tag=st - Inacom Gets Blue Cross / Blue Shield Business Valued At $42 M
17 October 14, 1999 http://www.inacomnetworks.com/news.htm - Inacom Launches IP Networking Business Unit
18 November 30, 1999 http://www.webocracy.com/Webraska/Webraska_Press/991202/inacom.htm - Inacom Appoints Thomas J. Fitzpatrick From Decision One As Chief Financial Officer
19 December 14, 1999 http://www.webocracy.com/Webraska/Webraska_Press/991214/inacom.htm - Restructure News, Layoff Of 1000 Expected And $100 - $150 M Charge To 4th Quarter 1999 Earnings Statement
20 December 16, 1999 http://aolcom.cnet.com/news/0-1003-200-1498203.html?tag=st - Reported Layoff Of 1000 Employees, Indirect PC Dealers Struggle
21 January, 2000 Inacom Fails To File Y/E 1999 & 4th Qtr 1999 Financials
22 January 4, 2000 Inacom Sells Off Distribution Business To Compaq For $369.5 M
23 January 7, 2000 http://aolcom.cnet.com/news/0-1003-200-1518592.html?tag=st - IBM Drops Inacom Ties
24 February 7, 2000 http://www.techweb.com/se/directlink.cgi?CRN20000207S0036 - Fairfield Out As CEO, Gagliardi In
25 March 30, 2000 http://biz.yahoo.com/prnews/000330/ar_steven__1.html - Cauley & Geller, LLP Announce Lawsuit On Behalf Of Shareholders
26 April, 2000 Inacom Fails To File 1st Qtr 2000 Financials
27 April 10, 2000 http://biz.yahoo.com/bw/000410/pa_bernard_1.html - Lawyer Bernard M. Gross Announces Lawsuit
28 April 11, 2000 http://biz.yahoo.com/bw/000411/id_micron__1.html - Micron Electronics Acquires Inacom Government Systems Assets
29 April 12, 2000 http://sec.yahoo.com/bw/000412/md_charles_2.html - Law Offices Of Charles J. Piven, P.A. Announces Securities Class Periods
30 April 26, 2000 http://biz.yahoo.com/prnews/000426/ny_milberg_1.html - Milberg Weiss Announces Class Action Against Inacom Corporation
31 April 26, 2000 http://biz.yahoo.com/bw/000426/ny_wolf_ha_1.html - Wolf Haldenstein Announces Filing Of Class Action Against Inacom
32 May 1, 2000 http://www.hoovershbn.hoovers.com/bin/story?StoryId=Coq0bqbWbtLLtudaXnq&FQ=c%25ICO%20&Title=Headlines%20for%3A%20ICO%0A - Inacom Dropped From The S & P Small Cap 600
33 May 17, 2000 http://biz.yahoo.com/prnews/000517/ga_inacom_.html - Inacom Announces Restatement Of Financials For All Of 1998 And The First Three Quartes of 1999
34 May 18, 2000 http://www.zdnet.com/sp/stories/news/0,4538,2572177,00.html - Inacom Hires Blackstone Group L.P To Explore Sale Of Business Units
35 May 23, 2000 http://www.nyse.com/press/NT0005ED0E.html - NYSE Delists ICO
36 May 26, 2000 http://www.hoovers.com/cgi-bin/offsite?url=http://www.edgar-online.com/brand/hoovers/search/?cik=0000818815 - 8K Filed Declaring That Inacom Would Be Restating Its Financial Results For Qtrs 1-3 Of 1999 And For Each Of Its 1998 Fiscal Qtrs
37 May 27, 2000 http://www.hoovers.com/cgi-bin/offsite?url=http://www.edgar-online.com/brand/hoovers/search/?cik=0000818815 - Inacom Files 10K (Notification Of Late Filing) For The Year Ended December 25, 1999
38 June 1, 2000 http://www.omaha.com/Omaha/OWH/StoryViewer/1,,345471,00.html - An Excellent Article About Former CEO Bill Fairfield And Inacom's Problems
39 June 2, 2000 http://www.hoovers.com/cgi-bin/offsite?url=http://www.edgar-online.com/brand/hoovers/search/?cik=0000818815 - 8K Filed For Credit Agreement Default Waver Until June 9, 2000
40 June 12, 2000 http://www.hoovers.com/cgi-bin/offsite?url=http://www.edgar-online.com/brand/hoovers/search/?cik=0000818815 - 8K Filed For Credit Agreement Default Waver Until June 16, 2000
41 June 12, 2000 http://www.techweb.com/wire/finance/story/INV20000612S0007 - Inacom Plans To File Chapter 11 Bankruptcy. 750 (13%) Positions Cut
42 June 16, 2000 http://www.hoovers.com/cgi-bin/offsite?url=http://www.edgar-online.com/brand/hoovers/search/?cik=0000818815 - 8K Filed Announcing Chapter 11 Bankruptcy
43 June 16, 2000 http://live.altavista.com/scripts/editorial.dll?ei=1914717&ern=y - Inacom Files Chapter 11 Bankruptcy, And Closes Doors To Services Unit
44 June 16, 2000 http://www.techweb.com/wire/finance/story/INV20000616S0013 - Sale Of Telecommunications Unit To Westcon Reported
45 June 19, 2000 http://www.ragingbull.com/news/news.cgi?articleid=CMTX6p2625 - Compaq Files Objection In Chapter 11 Bankruptcy. 43 M Withheld From Inacom. Compaq Claims 94 M Owed
46 June 19, 2000 http://biz.yahoo.com/bw/000619/ct_metagro.html - Meta Group Announces That Inacom's SLA's Were Not Profitable
47 June 23, 2000 http://www.zdnet.com/sp/stories/news/0,4538,2593375-3,00.html - UK Inacom Unit Also Reportedly Sold
48 June 23, 2000 http://biz.yahoo.com/prnews/000623/ny_sm_rt_p.html - Bankruptcy Filings List Assets Of $956.6 M And Liabilities Of of $560.7 M
49 June 26, 2000 http://computerworld.com/cwi/story/0,1199,NAV47_STO46288,00.html - Blue Cross Blue Shield Told Company Should Be Fine For At Least Two Months Two Days Before Doors Closed
50 June 26, 2000 http://dailynews.yahoo.com/h/cn/20000626/tc/net_services_shares_fall_on_shakeout_concerns_1.html - Bankruptcy Fallout - Shares Of Scient (SCNT), An Inacom Creditor, Fall 20%. Chills Sent Through Industry

ANALYSIS

The acquisition of Vanstar reportedly added a large amount of debt (total acquired debt, if any, unknown). Inacom paid too much for Vanstar for a company of its size (deal was reported costing $465 - $480 M (11 & 12)). Shareholders in Vanstar received .64 shares of ICO for each VST share. Vanstar had 43.26 M shares outstanding at the time the deal was struck. Based on these figures, over 27.7 M shares of Inacom stock were issued in the stock swap deal. The addition of 27.7 M shares of stock effectively more than doubled the number of outstanding shares, very dilutive to the existing shares. This, plus debt concerns, led to a decline in the price of the stock.

The SLA's (Service Level Agreements) of the newly formed company's services unit were too aggressive (46). The impact on the bottom line is unknown, but many SLA's include penalties for non-compliance.

The sale of the distribution unit to Compaq hurt Inacom when IBM severed the business partner relationship.

An obvious question is why would Inacom purchase the assets of Vanstar for an estimated $480 M and not sell this part of the business, essentially receiving nothing for an almost one half billion dollar investment?

The final demise of Inacom can be directly attributed to the unrealized credits posted to their books, assuming this is the reason for the need to restate financials. This resulted in a failure to report financials for 1999 and the first quarter of 2000. The next domino to fall was the existing credit agreements as the result of the failure to file the necessary SEC documents. In addition, because of Inacom's failure to file SEC documents, the New York Stock Exchange delisted Inacom (ICO) since they no longer met listing requirements.

The company slogan was 'Running Is Everything'. On June 16, 2000, both time and money ran out for Inacom and the only thing left to do was run away.

The analysis presented here is the opinion of the author and based upon the limited information available at the time.

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