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IBM misled investors on expenses: SEC

IBM misled investors on expenses: SEC

IBM misled investors by overestimating the impact of stock-based compensation expenses on quarterly earnings in 2005, the US Securities and Exchange Commission said on Tuesday.

The securities regulator made the statement as it reached a settlement with International Business Machines Corp, in which the company agreed not to commit future disclosure violations.

The SEC did not impose any monetary penalties and IBM, the world’s largest technology services company, did not admit or deny the SEC’s findings in the settlement announcement. The SEC’s order makes no finding that IBM committed securities fraud.

IBM misled investors by failing to disclose information that would have allowed them to accurately determine the impact that the company’s decision to expense stock options would have on its financial results,” SEC associate director of enforcement Scott W. Friestad said in a statement.

“The facts here are particularly troubling because the disclosure decision was driven, in part, by management’s perception of how the news would be interpreted by analysts,” Friestad said.

In an April 5, 2005, conference call, IBM led analysts to believe that the company expected stock option expenses to reduce first-quarter earnings by 14 cents per share and to reduce full-year earnings by 55 cents per share, the SEC said.

During the conference call, IBM had showed a chart showing its first quarter 2004 earnings per share would have been 14 cents lower, and its full-year 2004 earnings per share 55 cents lower, had the company expensed stock options at that time, according to the SEC.

IBM, however, actually expected stock options expenses to reduce earnings by only 10 cents per share in the first quarter and by only 39 cents for the full year, the SEC found.

IBM’s first-quarter earnings, reported nine days after the conference call, fell short of average analysts’ estimates by 5 cents per share, a big miss for the company. IBM shares fell more than 8% the day after the reported earnings.
Some analysts later complained that IBM, in effect, had led them to believe that the stock options’ impact would be larger than it actually was, disguising the magnitude of the earnings shortfall.

The SEC said IBM had wanted the gap in its stock options expense estimates to offset a previously announced, unrelated increase in pension expenses.

IBM did not want analysts to reduce their estimates for the stock option expenses because it would have increased their expected growth rate for the company, which would have been hard to achieve because of the pension expense, the SEC said.

“By engaging in this conduct, IBM violated the reporting provisions of the federal securities laws,” the SEC said in its order.

An SEC enforcement agent said the two sides had had discussions over several months before reaching the settlement.

Autoline Industries Ltd.

Autoline Industries Ltd. Jobs

Industry : Auto Ancillaries Auto components

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Bharathi MediScribe Pvt Ltd

Bharathi MediScribe Pvt Ltd Jobs

Industry : IT-Software Services

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Apax looks to take control of Patni for $800 million

Apax looks to take control of Patni for $800 million

UK Investor in Fray with Other PEs, IT Firms

UK-BASED private equity major Apax Partners is learnt to be interested in picking a controlling stake in Patni Computers Systems for over $800 million. Sources dose to the development said two mid-tier Indian IT companies and some private equity (PE) funds are also in the fray.
These moves come as Gajendra and Ashok Patni, who are co-founders and together own 28% stake in the Mumbai-based company, are looking to exit. PE firm General Atlantic too is looking to sell 16%.

When contacted by ET, Apax Partners India head Neeraj Bharadwaj declined to comment on the possible investment. A company spokesperson said: “Patni Computer Systems has not been informed by any of its large investors of their intent to offload any stake in the company. As a policy, the company does not comment on market speculations.”

Sources close to the development said like any other private investment in public equity (PIPE) deal, Apax is willing to pay an 8-10% premium over the existing share price for 44% stake in the company, The Patni scrip is currently trading at around Rs 540. If the deal materializes, it will be Apax’s first in India. The investment will be carried out through its $15-biIlion global fund.
Sources said two mid-tier Indian IT firms have also started talks with Patni. IBM too is said to be eyeing the company though there is talk that the US company may prefer the organic route for growth in India.

The Patni deal is expected to be among the biggest in India’s IT space. Incidentally, the largest PE deal in India has also been in this segment, when US PE giant Kohlberg Kravis Roberts bought over 85% in Flextronics for nearly $ 900 million last year.

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