There must now be some doubt about the ability of troubled global distributor CHS Electronics to carry through with its ambition to buy Australian companies CHA and Prion.
Last week CHS Electronics announced 1998 earnings of $US45.7 million, half what it had anticipated, after discovering discrepancies in the incentives the distributor gave to vendors last year.
In Australia, Roger Bushell, managing director of CHA, had indicated in the past that his company's deal was rock solid but having just returned from a CHS foreign partners conference in Norway, he has refused to comment on the latest developments.
The financial shake-up at CHS has led to personnel changes including the resignation of a European executive, and plans for cost-cutting measures including a 10 per cent workforce reduction, the consolidation of regional operations, and possibly the closure of warehouses and other operations, the company said in a statement last week.
Results have been restated after independent auditors and outside attorneys found that vendor rebates were overstated in the third and fourth quarters, the company said. Some of the fourth-quarter rebates were supported with invalid documentation and all of the overstated rebates have been reversed. As a result, a senior executive of CHS' European headquarters has resigned, according to the statement.
"We are taking appropriate steps to ensure that this situation does not recur, including a number of management changes and appointments," Claudio Osorio, CHS chairman and chief executive officer, said.
Meanwhile, the company is looking at ways to cut costs so it can reduce operating expenses by $40 million and increase cash flow by $50 million in 1999.
As part of its plan, the company said it will:freeze hiring worldwide and reduce total employee headcount by about 600, a 10 per cent reduction;streamline global operations from 10 to six units: Central Europe; Southern Europe-Middle East-Africa; Nordic-British Isles; Eastern Europe; Asia; and Latin America;review the possible closure of 25 to 30 redundant local warehouses across all regions;consider consolidating, closing or restructuring all local operations with unsatisfactory levels of profitability within six months;reduce capital expenditures in 1999 by $15 million and reduce selling, general and administrative expenses.
CHS stock was down to close at $3.50 after the announcement.
In early January the stock was trading at $US18 and dropped to $6 in late February and early March.
As ARN went to press, the last traded price for CHS shares on the New York Stock Exchange was $3.19.