Downfall of CHS UK fuels channel fears

The future of the distribution channel is again in doubt following the collapse into receivership last week of the UK trading arm of wholesale giant CHS Electronics.

The future of the distribution channel is again in doubt following the collapse into receivership last week of the UK trading arm of wholesale giant CHS Electronics.

As a management buyout team was being assembled to take a 51 per cent stake of the distributor in EMEA, Specialist Computer Holdings and Westcoast emerged as possible suitors for CHS Holdings UK and Metrologie UK after they were put up for sale by receivers BDO Stoy Hayward.

The crisis at CHS worldwide intensified last Friday when its shares were suspended on the New York Stock Exchange, pending a further announcement. They were reinstated on Monday without explanation.

CHS Electronics Plc UK was put into receivership last Friday by Deutsche Financial Services (DFS) after racking up debts of about £17m and violating its credit facility. Peter Rigby, director of marketing and communications at CHS, said DFS' move was "unexpected and unannounced."

"CHS Electronics Plc owed about GBP17m to DFS, but this was secured by accounts receivable of approximately GBP20m," he said.

Rigby added that the security of 250 jobs at CHS Electronics was dependent upon the successful negotiation of a takeover deal. "Most of those staff won't be needed if a deal fails," he said.

Rigby said it was "unlikely" he or the rest of the senior management team - including managing director Garry Boon and commercial director Jan Lawford - would stay at the distributor if the takeover went ahead as expected. He said a deal should be completed today, but could not reveal the identity of the potential buyer.

Meanwhile, some industry observers have expressed surprise at DFS' decision to place the UK company into receivership.

Nitin Joshi, a director at Pannell Kerr Forster, said: "Some of my clients - vendors and distributors - are astonished that this company is in receivership when it had ample equity and could pay its bills."

Steve Raymund, chief executive of Tech Data, believed it was too early to assess the wider implications of the move.

"We're a bit worried about the response by credit insurers," he said.

Raymund declined to comment on whether Tech Data was interested in buying Metrologie, but said: "In CHS' case, things are moving so quickly that negotiating and executing a deal with anyone at this point would be difficult."

A senior source at Ingram Micro revealed that the distributor had rejected an approach to buy the European operation last Friday.

Kate Hembury, sales and marketing director at online reseller WStore, whose sole distributor is CHS, said she was "saddened" by the move.

She said the reseller was in emergency internal negotiations to secure alternative lines of supply, adding that it was second sourcing product from Ingram and Computer 2000 in the interim.

If the proposed MBO for 51 per cent of CHS Electronics in the EMEA region gets the green light on Friday, worldwide chief operating officer Mark Keough would become chief executive.