CHA washes hands of CHS woes

CHA washes hands of CHS woes

Computer Hardware Australia's decision to retain its CHA branding despite entering into an incentive buyout agreement with CHS may have been a wise move. The US-based global distribution colossus has struck trouble in Europe, which could prove terminal.

Last week's European turmoil for CHS saw its UK subsidiary placed in receivership while three German and Austrian affiliates filed for creditor protection before engaging in management-funded buyouts.

Stephen Sampson, managing director of CHA, blamed CHS' recent crises on the decision by `a major vendor' to reel in its line of credit to the European operations of the high-volume, low margin box mover.

Just days later it was reported that majority interests in CHS Latin America and CHS Mexico had also been sold to a `management team'. Sampson said the situation `had sent shock waves through the whole CHS organisation' including CHA, but he saw `no reason to panic'.

`What has happened is that a major vendor reduced CHS' credit limit in Europe,' Sampson said. `As a consequence of that, its debtor insurers reduced their level of insurance cover. The net effect of that, given the level of business they did with this vendor, was that they suddenly needed to find a whole heap of cash and that is not easy.'

Though Sampson declined to name the vendor involved, he said that as far as he was aware the line of credit had been restored. It is known that CHS has a strong global relationship with IBM.

Should the troubles continue, you can expect the CHS branding to disappear totally from CHA's marketing. `I am not going to panic,' Sampson said. `We were always going to maintain the CHA name anyway and at the end of the day, they don't own the company until they pay us out. We will keep the CHA branding strong and phase out CHS if they do the right thing.'

Though disappointed at the distraction, Sampson said CHA would not go down with CHS should the parent company's slide continue. The only downside would be in the missed opportunities.

Sampson explained that the people he had spoken to from CHS claimed the receivership was designed `to hold off creditors for 30 days' while the management buyouts helped `cash up the parent company'. This would give them some working capital to address the problems, he said.

`To maintain volume on small margins you need to have financial institution funding,' Sampson said. `Effectively what they have done is use these transactions as a mechanism to exchange debt funding with equity funding,' Sampson said.

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