Watson buys back control of Blue Star

By Mark Reynolds

Eric Watson was miffed late last year when the Business Herald suggested he was negotiating to buy back some of the New Zealand assets of the Blue Star Group he had previously sold to US Office Products.

Yesterday, however, it was confirmed Mr Watson and some of his associates would pay $121 million for a controlling 60 per cent stake in Blue Star Business Solutions.

Mr Watson's private investment vehicle, Cullen Investments, will be the main shareholder in a joint venture that will acquire the businesses, with a few of Blue Star Business Solutions' senior management also participating in the deal.

The businesses include the operations of Wang New Zealand, U-Bix Document Solutions, Cogent Communications, Hart Candy, Auldhouse Computer Training and BSG Finance. Together, these companies employ about 1150 people and generate annual turnover estimated to be more than $300 million.

The convoluted deal involves US Office Products receiving $101 million in cash for the operations. The United States company will also issue Mr Watson and his partners a $20 million note that is not repayable for six years. US Office Products will retain the remaining 40 per cent of the business for the time being.

Mr Watson is overseas and was not available to comment on the arrangement. But the deal has been the subject of speculation since last November. Back then, the Business Herald reported Mr Watson dismissing rumours that a deal was being hatched for him to buy back the assets. "There have been a lot of rumours, but I have not had any discussions about that," he contended last year.

Yesterday's arrangement will see Mr Watson back in control of about a fifth of the Blue Star Group he previously wholly owned. US Office Products will hold on to Blue Star's other New Zealand assets, which include bookseller Whitcoulls and printer McCollam.

Mr Watson sold the Blue Star Group to US Office Products between June 1995 and June 1996, receiving shares and options in US Office Products as settlement. He cashed up a lot of that shareholding in 1997, but his contract is understood to have included a residual settlement due last month. The arrangement announced yesterday could be associated with that.

Mr Watson's only comment came through a statement which said that US Office Products did not see the Business Solutions assets as a good fit with its global business. "In the near term, however, it can still enjoy some of the value that the company can generate," he added.

The sale coincides with a programme of worldwide asset sales by US Office Products over the past 12 months, as it has struggled to cope with the cost of an overly ambitious international expansion programme. The company on Tuesday reported a net loss of $US97 million ($180 million) for its April financial quarter, compared with a profit of $US4.8 million a year earlier. The company will book a pre-tax loss of $25 million - $30 million on the sale of the Blue Star Business Solutions assets.

Staff of the Business Solutions companies indicated yesterday some relief and enthusiasm that the operations had been bought back. "There's a really positive feeling that we can work together now in some of these companies," said one staff member. The operations range from software development by Wang through to mobile phone sales by Hart Candy.

Blue Star Business Solutions chief executive Anthony Howard, who is one of the new owners, said the move would increase inter-company opportunities, especially in the development of e-commerce and e-service markets. Mr Watson already has other information technology investments through his 14 per cent shareholding in listed Advantage Group. He also has electronic goods distribution and retailing investments through his controlling stake in the Pacific Retail Group.