*NEW*FIN. IRREGULARITIES @ AZERTY CANADA

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*NEW*FIN. IRREGULARITIES @ AZERTY CANADA

 user 2006-05-11 at 11:34:00 am Views: 50
  • #15408

    When Azerty lost momentum
    Financial
    irregularities at Azerty United were partly to blame for the sale of
    the division, according to execs close to the deal .Two years ago
    office supplies distributor United Stationers discovered evidence of
    fraud and financial irregularities at its Azerty United Canada
    division, leading to the removal of senior executives.the fallout from
    that discovery led to an agreement Thursday to sell most of the assets
    of the division to Synnex Canada for US$17 million.“Although we made
    progress in reducing the US$5.9 million in operating loss reported by
    the Canadian division in 2005, we decided it was best to sell the
    division,” United president and CEO Richard Gochnauer told analysts
    Friday in a conference call to discuss the company’s first quarter
    results.United has been close-lipped about the division’s troubles,
    refusing to identify which executives were replaced. It said in its
    2004 annual report that it had to take a US$13.2-million charge
    following an investigation that took “countless hours reviewing
    customer and supplier transactions and divisional books and records.”
    It
    concluded “certain items were incorrectly accounted for, and we found
    evidence of fraud by certain personnel.”However, Pat Collins, senior
    vice-president of sales who also has responsibility for Canada, said in
    an interview Friday the problems didn’t cause irreparable damage to the
    division, which had annual sales of US$120 million in ink and toner
    consumables and office supplies. However, in the quarter just ended the
    division recorded a US$900,000 operating loss.
    “Our decision in
    Canada was really more one of just the basic economics of what the
    business was there,” he said. “And candidly we felt and still feel we
    had a good operation there that needed more volume in order to be
    successful, and we would need to acquire that or be acquired.” Nor did
    he believe Synnex Corp.’s purchase in 2004 of EMJ Data Systems, one of
    Azerty’s biggest competitors, was not a factor in the Canadian
    division’s fall .That’s not, however, how EMJ head (and now Synnex
    Canada chair) Jim Estill sees it. The Synnex purchase of EMJ was the
    “power engine” that turned his small company into a major threat to
    Azerty, he said. Azerty’s financial difficulties didn’t help, he
    said.“When they changed their management team they really lost
    momentum,” said Estill. He estimates that Synnex Canada won a half a
    dozen major retail chain accounts from Azerty since 2004 because of its
    problems.“I suspect (the financial problems) is partly why United isn’t
    thrilled with Canada,” he said.Asked if the 2004 problems affected
    Azerty’s business, Estill replied, “I believe it did. It’s very tough
    to quantify, but distribution is a very lean business and there’s very
    little margin for error.  They lost some of their customer
    relationships because they lost all of their senior staff, lost some
    vendor relationships.”Synnex’s purchase of Azerty is expected to close
    by June 15. Estill said it will absorb some 60 of Azerty’s staff, about
    half of its employees in Toronto, Montreal and Vancouver. Synnex Canada
    will move into Azerty’s offices in Montreal.United said it could take a
    charge of US$6 million due to staff payouts and termination of Canadian
    leases.
    Collins said it began shopping the division in the last
    quarter of 2005. Estill said he heard about it and began
    discussion“Synnex is probably the largest distributor of toner supplies
    in Canada,” he said, “and Azerty, if they weren’t second they were
    close to second, so it very much solidifies us in that market,” he
    said.While Azerty’s major suppliers – including Hewlett-Packard,
    Lexmark and Brother – are also carried by Synnex Canada, Estill said
    there will be “huge economies of scale.” It will, however, pick up some
    new accessory lines.“They would have some resellers that we don’t
    have,” he added. “They were stronger in office supply space than we
    were. However, most of the larger customers we would both have been
    dealing with.” The majority of Azerty’s business here was toner and ink
    consumables, but there was some office equipment products as well. That
    is not part of what United is selling to Synnex, but the company is
    getting out of that business up here.United acquired Azerty in July
    2000. Before that it had been part of Ohio-based Miami Computer Supply,
    which bought the company from Axidata.