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In an ideal world, Chapter 11 bankruptcy provides an orderly venue for a struggling company to reorganize into a viable entity. Unfortunately for Comdisco Inc., real-life bankruptcy has less to do with ideals than with deals. And with $6.7 billion in debt on the line and creditors and company management clashing, things are getting ugly for the Rosemont, Ill., technology services giant. The latest turn came Feb. 7, when Comdisco announced that president and Chief Operating Officer Michael Fazio, who was brought in two weeks before the company’s July 16 Chapter 11 filing to help lead the reorganization effort, had left the company. According to sources, his departure culminates a months-long battle with the company’s creditors committee, and his exit could signal a reversal in the company’s plan to reorganize the company around its remaining businesses. Comdisco announced Feb. 5 that it would keep its information technology, telecommunications and health care leasing units as it attempts to emerge from bankruptcy. With Fazio out and turnaround specialist Norm Blake as the company’s acting chairman and CEO, sources say Comdisco is leaning toward winding down and perhaps even liquidating its core operations. “The company will probably come forward with a plan that contemplates running off the portfolio over a three-year period,” a source said. Comdisco is sticking to its earlier declaration that it will emerge from bankruptcy in the first half of the year. The company said Wednesday that it will file by April 15 a reorganization plan structured around its remaining leasing businesses. It plans to let its portfolio of nearly 500 venture capital investments run its course without additional financing. Fazio had steadfastly opposed liquidating Comdisco’s remaining assets, but his departure removes that obstacle. “There’s not a continuing business here,” a source said. “The question now is, ‘How will this be run off?’ And there are many possible ways it could go.” Neither Comdisco executives nor spokeswoman Mary Moster would elaborate on the company’s restructuring plan. “I’m not going to comment on what our plan of reorganization is going to be,” Moster said. “It is still our goal to emerge from bankruptcy in the first half of 2002.” According to sources, the developments leading to Fazio’s exit came to a head nearly two weeks ago. That was when Tyco Capital, a subsidiary of Pembroke, Bermuda-based Tyco International Ltd. that had agreed to pay 95 percent of book value for the company’s $1 billion information technology leasing portfolio, backed out hours before the scheduled closing. The failure left company officials uncertain about how to proceed. “The debate inside Comdisco is what to do with IT leasing after Tyco crapped out,” said a source involved with the deal. “Fazio was a proponent of the keep-and-run strategy. That pissed off the creditors, and he became a sacrificial lamb.” In a statement Wednesday, however, Comdisco characterized Fazio’s departure as an amicable parting. “Michael Fazio played an instrumental role in this process, and we greatly appreciate his many contributions,” Blake said in a statement. “At the same time, we understand his desire to move on to new challenges at this time and wish him well.” Fazio’s exit was set in stone at least five days before the Wednesday announcement. At a regular meeting in Chicago on Feb. 15, Blake cleared the room of several senior Comdisco executives in attendance and informed the remaining participants that Fazio was leaving. The meeting had been convened for Blake to address concerns about whether his involvement in Enron Corp., where he sits on the board of directors, would hinder his ability to lead Comdisco’s reorganization. He assured them it would not. “He’s back from Enron and refocused to get this wrapped up,” the source said. “There is a good possibility of a global solution on this baby rather than all this piecemeal crap that we’ve been watching so far.” Comdisco in November sold its disaster recovery unit for $850 million to SunGard Data Systems Inc., and last month reaped another $665 million on the sale of its electronics and laboratory and scientific leasing units to a division of GE Corp. The company also received bankruptcy court approval last week for a $6.8 million sale of its IT services unit to T-Systems, a unit a Deutsche Telekom. One Comdisco option is to repay creditors by leveraging against the cash flows from its leasing businesses, which in 2001 earned $1.8 billion in monthly payments. Combined with the more than $2 billion in cash the company has on its books and $1.3 billion in asset-sale proceeds, that could mean handsome returns for creditors. “Relative to most bankruptcies, there’s going to be very good recovery for the creditors, the source said. “You’ve got a situation where there’s not that much left [of the company], and there’s a lot of cash that’s built up, so you can just pull the rip-cord for the cash and let that come out.” Copyright (c)2002 TDD, LLC. All rights reserved.

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