Pecos SWW<>History And Case Study Of Inacom

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.

The following may have contributed to the Inacom chapter 11 filing

The merger/acquisition of Vanstar and its debt (11 & 12)
No new major contracts found after the Blue Cross / Blue Shield business on July 12, 1999 (16)
Unreported SEC filings for EOY 1999, 4th Qtr 1999 and 1st Qtr 2000 (21 & 26)
The loss of IBM as a business partner due to the sale to Compaq (23)
Unrealized account receivables (34)
SLA's not profitable (46)
Upper management not aggressive enough in cost cutting measures
Direct resellers like Dell
Competition in the VAR space
Ongoing cash flow problems
The Inacom and Vanstar cultures clashed and the two never became a team

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 following may be some of the factors in Inacom's failure to continue operations long enough to complete the sale of the services unit and other business units

The restatement of the financials for prior quarters was incomplete causing difficulty in arranging any new financing agreements (37)
All incoming revenues were sent directly to creditors (40)
Several extensions had already been granted by the creditors (40)
Payroll was costing an estimated $6 M per week per some employee comments. This seems a reasonable number (5500 employees * $1000 per week = $5.5 M). Creditors were willing to fund up to $6 M for payroll. Ongoing operations could no longer continue if there was no cash in the bank, additional financing could not be found and the existing creditors would not grant another waiver beyond June 16, 2000 (40)
The stock price was well below $1.00 per share. Inacom could not issue additional shares and receive working capital
Management waited too long to aggressively market the services business unit

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.

Pecos SoftWareWorks Home Contact Me Terms of Use Rev 09/30/10 Privacy Policy Rev 05/20/09 About Us Site Map

Tweet
© Copyright 2007-2015 Alan Norton None of the content may be used or reproduced without written authorization from Alan Norton.