By Alan Deans
new York view
If Graeme Hart retired from being a budding entrepreneur, he could teach a lesson or two in blowing up businesses. Indeed, if he was in America, chances are he would already have a bestseller under his belt.
Hart has close personal experience in corporate demolition, not from
his own actions but rather because he was standing too close to implosions carelessly set by others.
The Aucklander has become a celebrity in Australia for buying into Burns Philp & Co only to find that the ambitious foods group had stored up enough bad news to nearly wipe out the fortune he invested in its shares.
He has since worked diligently to dig his way out of a hole created by Burns Philp's ambitions to be a world leader in herbs and spices production, adding to its strong position in yeast markets.
The irony is that the fortune Hart nearly lost came from another megalomaniacal company that is fighting death throes of its own.
Hart's payday came several years ago when he sold the Whitcoulls books business to Washington, DC's US Office Products Group.
It was a sweet deal, although Hart could not have known that the Americans were engaged in biting off more than they could chew. Why should he worry? That was their problem.
Now it is clear just how much of a mess US Office Products is in.
As part of its survival plan, the company is selling 60 per cent of its New Zealand office technology operations - covering telecommunications manufacturing, the local rights to Wang and Ubix and software sales - to Eric Watson.
He is another lucky Aucklander who also did well by selling out to the Americans.
All of its other operations in Australasia, the US and Britain are under review, and some are sure to be sold.
US Office Products was formed in 1994, and in a little over four years it completed 238 takeovers.
If that sounds like a lot, it is. It amounts to more than one a week, a pace that makes it impossible for any manager to fully assess a prospect's assets let alone assimilate them properly. No wonder it got severe indigestion.
Reality dawned early in 1998 when the board cut up its credit cards and tried to make its sprawling empire fit together. It refinanced debt, repurchased $US1 billion in equity, spun-off four business units and sold a quarter of the company to an investment group that is still struggling to fix up the mess.
Trouble is, just as Burns Philp stopped short of gaining critical mass in herbs and spices, so too US Office Products doesn't dominate enough of its chosen markets for office stationery, furniture or books.
Indeed, in America, it has five competitors that are snatching away large corporate clients and encroaching upon its core, mid-sized business market. Now some wholesalers and manufacturers are cutting out distributors like US Office Products by going directly to customers.
A quick fix has proved impossible. The investment group has put in more money, banks have had to renegotiate loan agreements and new management teams are trying to cut costs. US Office Products has the delicate job of keeping creditors happy by shutting warehouses and sacking staff while winning agreement to update information systems and expand its Internet sales strategy.
In the fiscal 1999 year, which ended late in April, US Office Products reported a loss of $US198.8 million. Long-term debt was $US1.2 billion, while stockholders' funds had eroded to a perilously low $US480 million. More than 40 per cent of assets were intangibles from goodwill lavished on past acquisitions.
Statements issued when these figures were released were upbeat, but the future is by no means assured. When the company released its third quarter results back in March, it said that it expected to report earnings before interest, tax, depreciation and amortisation of $US175 million to $US185 million. It made just $US166 million, something that it earlier warned could bring new financial troubles from its banks.
This is the sort of situation that attracts vultures, so it is no surprise that Eric Watson has spotted a bargain. US Office Products knows that it must concentrate on its core office products operations, and that could mean the sale of strongly performing assets like Whitcoulls and Angus & Robertson Bookworld in Australia. Its 49 per cent stake in Britain's Dudley Stationery also could end up on the block, as could its American private mail service franchise Mail Boxes Etc.
All of which is enough to make Graeme Hart reflect upon lost opportunities. Few people know the Whitcoulls and Angus & Robertson businesses better than he does. Now there is a once-in-a-lifetime chance to repurchase them, but he is stuck trying to put together the pieces at Burns Philp.
* Alan Deans is New York correspondent for the Australian Financial Review.
By Alan Deans
new York view
If Graeme Hart retired from being a budding entrepreneur, he could teach a lesson or two in blowing up businesses. Indeed, if he was in America, chances are he would already have a bestseller under his belt.
Hart has close personal experience in corporate demolition, not from
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