ACS Going Private? This time for real!

Story 1

Affiliated Computer Services Chairman Darwin Deason has joined with investment partner Cerberus Capital Management in a cash bid to take the troubled business process outsourcing company private. Cerberus has put an offer on the table to take ACS private in a US$5.9 billion buyout. That translates to $59.25 per share, a 15.5 percent premium over the ACS closing price on Monday of $51.29.

ACS has been a likely acquisition target for some time. It has been beleaguered by a backdated stock options investigation that cost the company millions of dollars and prompted the resignation of two top executives last year. Also, its image was tarnished after it languished on the market when it failed to be acquired by private equity investors at the end of 2005.

Little wonder then that the market loves the proposed deal. Shares of ACS were up 16.8% to $59.91 a share on Tuesday after Dow Jones reported that the private equity fund and ACS Founder Darwin Deason planned to buy the company. "The reaction in the market is interesting, because it has pushed the stock price above the takeover price. This is somewhat unusual. Normally, one might expect to see the stock move higher, but not quite to the takeover price -- since there is always a risk of a deal falling apart." In this case, it appears that investors are confident that ACS will fetch the full buyout price. The Dow Jones report indicates that Citigroup is funding the deal and has issued a letter stating that it is highly confident that it will obtain the necessary financing.

Story 2

New questions have arisen about the stock option backdating practices at ACS. An internal probe blamed the backdating on two ousted former executives and another former CEO. No other company executives or directors were involved, according to the company. But a handwritten note by ACS Chairman and founder Darwin Deason discussing the practice of "always" picking the "lowest prices" in a quarter to award stock options puts those assertions in question. Attorneys for Mr. Deason say the note does not imply backdating, nor does the note imply Deason did anything illegal. News of the note comes at a sensitive time. Earlier this week, Deason joined with Cerberus Capital Management to make an offer to take ACS private. Some observers have questioned whether Deason is trying to scoop up the company at a bargain price while its stock is depressed. (The Wall Street Journal, 22-Mar-2007, Midwest ed., p. A4)

NJ Pension Underfunding Substantially Understated

Douglas Love, a prominent member of the council that oversees investments by New Jersey's public pension funds, contends the state has been vastly underestimating how much money it should have to pay for retirement benefits promised to employees. Love says the state has been using inappropriate methods to calculate the value of the benefits promised. He says benefits already earned total $132 billion or more - substantially higher than the $91 billion officially reported. He says a more realistic calculation of the unfunded liability is $56 billion -more than three times as much as the $18 billion included in a recent state report.

HP Pension Plan

Hewlett-Packard will be phasing out its defined benefit pension plan for new employees and replacing it with a 401(k) plan.

Post-Retirement Health Benefits

According to new GASB rules, all 50 states as well as the United States' largest cities will soon have to disclose the value of health care benefits promised to retired workers. That has many governments scrambling. Cities and states that have already calculated the numbers don't like what they are seeing. The numbers are alarmingly higher than expected. Taxpayers are angry. Bond ratings are imperiled.

[NYT]

From the Washington Post

The US has a bad habit of building in areas that don't make sense environmentally or actuarially. That habit has been aided and abetted by public officials who bend to the will of developers and their customers, despite storms, floods, earthquakes and other natural calamities that destroy lives and break banks. The latest example of this can be found in Florida. By rolling back insurance rates, spreading the risk and fiddling with its catastrophe fund, the Sunshine State has invited more development in dangerous places.

Florida is the country's first pin in hurricane alley. The major storms of the 2004 and 2005 seasons and their respective $20 billion and $10 billion payouts sent the insurance industry fleeing from the state. Those that stayed either stripped high-risk policyholders of coverage or jacked up premiums. So here's what the state government did: The state-run insurer of last resort, Citizens Property Insurance Corporation, which is also the state's largest property insurer, rolled back planned rate increases. It will try to spread the risk by offering other policies, such as fire and theft. And it will offer its subsidized rates to commercial property. We live in an era with the potential for destructive storms. Everyone - from politicians to the voters they aim to please - must understand that there is a cost to offering below-market insurance that fuels unrestrained building in high-risk areas.