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Learning Co. stock bruised
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August 19, 1998: 6:37 p.m. ET
Report questions impact of risk management activities; shares drop
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NEW YORK (CNNfn) - Shares of The Learning Co. and Broderbund Software Inc. took a beating Wednesday on word of an analyst's report that cast a shadow of doubt over the proposed $420 million merger of the two software firms.
The sell-off was triggered by a report from Pacific Crest Securities' analyst Jeff Goverman. Shares of The Learning Co. (TLC) closed down 5-1/8 to 20-5/8 while Broderbund's stock (BROD) shed 4 to 16-3/8. Both issues were halted for trading Wednesday afternoon pending the news.
In refuting the report from the regional investment firm, The Learning Co. said Wednesday it has not artificially overstated the impact of its risk management activities and remains fully committed to its acquisition of Broderbund announced on June 22.
A spokeswoman for Cambridge, Mass.-based Learning Co., Susan Getgood, said the Broderbund transaction is proceeding as planned and shareholders are still scheduled to vote on Aug. 31.
The situation arose after Learning Co.'s 10-Q filing was delivered on Tuesday to the Securities and Exchange Commission. In the filing, the company outlined its practices of managing the risk of collecting its accounts receivables.
In general, companies can manage their risk by selling their accounts receivables to generate cash in one lump sum, rather than collecting the accounts over time -- a practice known as "factoring."
And to avoid the risk of default, companies will factor their accounts on a "non-recourse" basis -- meaning the buyers of those receivables are responsible if the accounts go bad.
But, under a new factoring agreement, Learning Co. sold $25 million worth of European accounts receivables on a recourse basis. Because they were done on a recourse basis, those accounts remain on Learning Co.'s books -- a practice that Pacific Crest's Goverman disputed in his report.
"These facilities do not increase or decrease accounts receivable," Getgood said. "It's a very common business practice."
Indeed, other analysts acknowledged that Learning Co. hasn't changed its risk management or accounts collection procedures.
"We believe there is no issue here -- there is no fundamental change in the way the company is handling its collections," said Michael Wallace, analyst at Warburg Dillon Read.
Goverman couldn't be reached for comment.
-- by staff writer Robert Liu
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