Claim: DDi Falls Short With Bankruptcy Plan
By ANDREW SIMONS
The choppy sea pounding Anaheim contract electronics maker DDi Corp. just got a little rougher.
A DDi shareholder has lodged a legal objection to the company’s bankruptcy reorganization plan set out in its Chapter 11 filing of Aug. 30.
Attorneys for shareholder Edward Shirley,represented by Red Bank, N.J.-based Betancourt, Van Hemmen, Greco & Kenyon,filed the objection with a federal bankruptcy court in New York two weeks ago.
Shirley, who owns about 2.5% of DDi’s 50 million shares, has asked the court to put off confirming the company’s bankruptcy plan.
The objection claims the plan undervalues the company and unfairly takes equity interest away from shareholders and gives it to company insiders and bondholders, the filing said.
“It provides bondholders with more than the amount they’re owed,” said John Greco, an attorney with Betancourt, Van Hemmen.
The objection also calls for a committee of shareholders to be set up by the court trustee to protect the group’s interest.
A DDi spokeswoman declined to comment for this story, citing the company’s policy of not discussing pending litigation.
The restructuring plan in question requires DDi to reduce debt to $91 million from about $330 million, and give creditors most of the company’s ownership.
According to Shirley’s objection, the plan calls for senior management to receive up to 20% of the reorganized company’s shares, with just 1% going to existing shareholders. Employees could get up to 4% of the company.
“It unfairly discriminates in that it provides management with a large equity interest in the reorganized debtor at the expense of the equity security holders,” the objection read.
The suit is the latest hurdle to emerge in the company’s turnaround bid.
DDi faces at least five class-action lawsuits accusing the company from shielding investors from accurate financial data, among other claims.
One suit involves New York-based Milberg Weiss Bershad Hynes & Lerach LLP and its high-powered attorney William “Bill” Lerach (see related story, page 7).
Filed in October, Milberg Weiss’ suit includes a scathing rebuke of the company, alleging everything from accounting fraud to mismanaging of its electronics plants.
Some of the suit’s complaints: DDi failed to properly conduct its impairment test of the company’s assets, including goodwill; it overstated the value of its inventory; its receivables and projections were grossly overstated as the company’s clients were delaying payment or defaulting on their debts to DDi while the technology market continued to deteriorate; and the company’s results, which defendants claimed “outperformed (their) expectations,” according to the suit, were the result of improper accounting.
Milberg Weiss’ suit also notes that all of the company’s operations,including its massive Anaheim facility,were “hemorrhaging” cash.
DDi’s financial position stands in stark contrast to years past, when it was one of Orange County’s most valuable companies, counting a market value of about $1.7 billion at its peak. It employed almost 3,000 workers and racked up annual sales of almost $500 million in 2000.
Wall Street loved the company, with all but one of the brokerages covering the stock rating it a “strong buy.”
Not anymore. The company has cut its staff to about 1,800 workers. It trades on the lowly over-the-counter bulletin board for 19 cents a share, giving it a market value of $9 million.
Sales in the third quarter were about $59 million, down a hair from a year ago. DDi had an operating loss of $3.7 million in the quarter.
DDi makes printed circuit boards,the electronic innards that run products from wireless phones to personal computers. Companies hire DDi for quick turnaround of custom circuit boards for use in their own products.
DDi operates on an extremely fast pace, often turning around massive orders in a day. The company counts some of the largest wireless phone and networking gear companies as its customers but also competes against much larger contract makers such as Sanmina-SCI Corp., Flextronics International Ltd. and Celestica Inc.
