*NEW*FIN. IRREGULARITIES @ AZERTY CANADA

[Anonymous]

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.

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May 11, 2006 at 11:34 AM