Battling For Comdisco's Business UnitBattling For Comdisco's Business Unit

The battle for the right to buy Comdisco Inc.'s availability-services business rages on. Comdisco, which filed for Chapter 11 bankruptcy protection in July, plans to recommend Hewlett-Packard's $750 million bid to the U.S. Bankruptcy Court of the Northern District of Illinois at a Nov. 7 hearing. This recommendation comes against the wishes of Comdisco's equity committee, which favors SunGard Data System Inc.'s $825 million bid.

SunGard's competitive position with Comdisco further complicates matters. On Oct. 22, the U.S. Department of Justice filed an antitrust suit to block a merger of the two companies. SunGard has maintained its original Oct. 12 bid for Comdisco's $440 million availability-services business. But HP raised its original July 16 bid of $610 million to $750 billion after the DOJ lawsuit was filed. SunGard senior VP and general counsel Larry Gross believes HP's second bid violated bankruptcy court procedures. An HP spokeswoman says her company, unlike SunGard, has passed the government's regulations against antitrust and the acquisition is now a matter for the courts to decide.

A Comdisco spokeswoman says an auction was held Oct. 11 to ensure the shareholders and creditors got the best price for the business unit. Following the auction, Comdisco, its creditors' committee, and an equity committee representing the shareholders each made recommendations to the bankruptcy court regarding whether it should accept SunGard's or HP's bid. She says Comdisco plans to recommend HP's bid to the bankruptcy court. This move is supported by the creditors' committee but not by the equity committee.

The Justice Department routinely scrutinizes acquisitions in "compressed industries," such as the one for availability and disaster-recovery services, says Robert Fleischman, a partner with Steptoe & Johnson, a Washington, D.C., law firm. "It's not the typical antitrust case where you're dealing with an entity in Chapter 11," he says. The bankruptcy judge is looking for the most money to pay off the creditors, but the Justice Department's role is to ensure that the merger of two companies doesn't substantially diminish competition in a given market.

Legal issues aside, either suitor would be well advised to leave Comdisco's management team and consultants in place, says Adam Couture, Dataquest's senior analyst of IT services. And there will be substantial challenges regardless of which company wins the bid. Even with Comdisco's resources, SunGard would still rank behind IBM Global Services in the business-recovery services market. And HP, which has never had a top-tier business-recovery services unit, would have to compete with IBM in yet another area.