Monday, November 27, 2006

Analyst Says Affiliated Computer Services (ACS) News Could Bring Up Going Private Talk Again

Stifel Nicolaus comments on Affiliated Computer Services (NYSE: ACS) following news that an option investigation determined that prior CEO Jeff Rich, CFO Warren Edwards, and CEO Mark King all engaged in backdating. King and Edwards announced their resignations related to the news.

Analyst George A. Price said, "Last year, private equity pursued ACS to go private, though ultimately the company chose not to pursue that path. With the senior management changes, we believe the question of going private may arise again. Two items to note: 1) Chairman has super voting rights, controlling about 40% of the voting control of the shares (we estimate) " he would have to be open to the idea to go private, and 2) business has changed - the operating margins declined 150-200 bps, capital intensity has increased (more ITO in the mix). ACS might not be as attractive to private equity firms as it was last year (lower price than the $62 price discussed last year)."

The firm maintained their Hold rating on the stock, citing declining margins, low organic revenue growth, and high debt load.

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