Blue Star spree not over yet

Blue Star Group, which is in the process of buying PC Direct, has further acquisition plans.

Not content with its swoop on PC maker PC Direct, Blue Star is looking for new prey in the transtasman contract stationery, office technology and systems integration markets.

The sale agreement covers 100% of PC Direct’s shareholding, including the 25% stake for which Direct Capital paid $4.16 million last year. The company was bought for shares in US Office Products and is valued at around $30 million.

At the same time, Blue Star announced it had bought 75% of cellphone and radio equipment company Hart Candy Communications, and Melbourne contract stationer Goodman Cannington Prince.

Bryham describes the sale as “the bringing together of two New Zealand business success stories”.

“We see this as the chance to become part of what is now one of the largest multi-tiered technology groups in this part of the world,” he says.

According to Blue Star chief executive Eric Watson, the acquisitions bring the annual turnover of subsidiaries, including Whitcoulls, to $1.5 billion.

The remarkable growth of Blue Star brings back memories of the high-flying 1980s. Blue Star’s seemingly unending buying spree of New Zealand office products suppliers has already seen the acquisition of Whitcoulls, U-Bix, Wang New Zealand, General Packaging and Wellington Business Equipment. A bid for computer company Sealcorp fell through due to tax implications last month.

Blue Star’s US-based parent, US Office Products, has completed 90 acquisitions since it was founded in 1994 and claims annual sales of $3.4 billion.

There’s certainly a view among some analysts that this highly leveraged model may be a house of cards--if one falls the rest could tumble.

The key is US Office Products, which became a public company in February 1995. The most recent research available shows that Watson is the largest individual shareholder in USOP with 7%. Founder and CEO Jon Ledecky holds 4%.

Some significant events lie behind the latest acquisitions.

In August, USOP entered into an agreement with Bankers Trust to provide a $US500 million revolving credit facility at USOP’s option, replacing an existing $US50 million loan. The fully underwritten credit was increased from its original size of $US250 million to accommodate the company’s additional acquisitions in the UK and Australasia.

The availability of the facility is subject to certain limits, including $US100 million for working capital loans and $US400 million for acquisition loans. There is a limit of $US180 million to be used to re-finance some outstanding debt in Australasia.

The credit facility is secured by a majority of the assets owned by USOP, and contains financial covenants relating to leverage, interest cover and capital expenditure.

USOP is paying the bank’s base rate plus an applicable margin of up to 1.25%.

Also in August, stockholders approved an increase in the number of shares of common stock--par value is $US0.001 per share--authorised for issue from 100 million to 500 million shares. Thus USOP can continue its acquisition strategy, through a mixture of cash and common stock.

In September, USOP filed an amended certificate of incorporation to increase the number of authorised shares of capital stock from 100,500,000 shares to 500,500,000 shares.

At July 27--USOP’s most recently available quarterly figures--the company had cash of $US98.9 million and working capital of $US213.6 million. It was capitalised at $US815.3 million. Combined revenues for the group were $US352.6 million, and net income was $US7.5 million.

Watson says there is no threat of downsizing at PC Direct due to “synergies” within the new group.

“There are more opportunities for PC Direct,” he says. “It will have access to our customer base and our finance company. It will have large amounts of capital. We can see PC Direct growing very quickly.”

And what’s next?

“We’re obviously pursuing acquisitions that fit into our strategy.”

So it’s not over yet?

“Oh, no.”

Blue Star will be targeting the contract stationery and office technology markets transtasman and the systems integration market through its New Zealand Wang operation.

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