It's not unusual for the newsroom phones to start ringing
as
Willamette Week hits the streets on Wednesday
mornings. Last Wednesday was no different, except that
instead of the calls coming from the Portland area, they
originated on Wall Street.
The callers wanted to know more about a WW article
that raised questions about the shipping practices at
Sequent Computer Systems Inc. ("Return to Sender," Aug.
18, 1999). The article, which was posted on WW's
Web site early Wednesday morning, caught the attention
(or at least the browsers) of financial reporters, stock
analysts and money managers.
The article focused on a shipment made on March 31
of this year that was apparently destined for Federal
Data Corp., a computer distributor located in Bethesda,
Md. The shipment went instead to a Portland warehouse,
and was returned, unopened, to Sequent headquarters
on April 20. A Sequent employee told WW that
at the ends of fiscal quarters the company regularly
ships equipment that, like the Federal Data order, is
returned unopened. The story also reported that federal
securities regulators were looking into the shipment.
After Wall Street traders read the story on WW's
Web site, Sequent stock plummeted, ending the day down
2 3/8 on about six times its normal volume.
The article provoked a denial by Sequent, which issued
a press release saying WW's story "makes a number
of false and misleading statements."
The release, however, did not appear to rebut any of
the facts cited in the story.
The release, for example, quoted Sequent Chief Financial
Officer Robert Gregg as denying booking any revenue
on the shipment in question. WW never said Sequent
booked revenue on the shipment; in fact, we reflected
two Sequent officials' adamant denials that revenue
was booked. We further said there was no proof that
Sequent had done anything wrong.
The second major point in Sequent's press release concerned
"the allegation that federal securities regulators are
investigating the matter."
In fact, WW made no such claim. Instead, the
article stated that the Securities and Exchange Commission
"is merely asking questions at this point, which is
far less serious than an investigation." While the SEC
will not officially confirm or deny its activity, we
stand by our original statement.
Sequent wasn't alone in questioning the story. A research
brief published by securities analyst Fred Helmig of
SoundView Financial Group and reprinted on a Yahoo!
message board claimed that the source of WW's
story was a disgruntled employee. In fact, since we
began working on the story more than a year ago, several
former and current employees have raised questions about
Sequent's sales practices.
Sequent's response, however, seemed to calm investors.
After falling nearly 15 percent, stock prices began
to creep up on Thursday. Sequent was helped by a Federal
Data press release reversing their earlier statement
to WW that they didn't know anything about the
Sequent shipment. By Tuesday, the stock had regained
all its losses.
Wall Street's interest in WW's story stems from
Sequent's pending acquisition by IBM. Many short-term
investors--called arbitrageurs--bought large blocks
of Sequent stock when IBM announced the takeover, reasoning
that any price lower than the announced acquisition
price of $18 per share would yield low-risk profits
when the deal closed in September.
IBM has said nothing about Sequent in the past week.
Some observers worried that Big Blue's silence was ominous;
others felt the company had nothing to gain by commenting.
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Willamette Week | originally
published August 25,
1999
