CDW fights Micro Warehouse allegations

CDW Corp. denies it violated any laws with its purchase last September of rival Micro Warehouse Inc., which filed for bankruptcy protection the day after the transaction, according to CDW filings with the Securities and Exchange Commission.

The Vernon Hills, Ill.-based reseller of computers and related tech products and services, last September purchased selected American assets and the Canadian operations of Micro Warehouse of Norwalk, Conn., another reseller of computers, software, accessories and peripherals.

CDW acquired the U.S. assets of Micro Warehouse for $20 million Sept. 9 and bought the firm's Canadian operations for $2.7 million on Sept. 23.

The day after the U.S. transaction was completed, Micro Warehouse voluntarily filed for Chapter 11 bankruptcy protection with the federal bankruptcy court in Delaware.

The rapid bankruptcy filing led Micro Warehouse's creditors to believe they were shortchanged in the deal.

A committee of Micro Warehouse's unsecured creditors, appointed in the bankruptcy proceedings, filed a court motion on Jan. 20, requesting certain corporate documents for review and certain CDW representatives for depositions to determine if CDW's purchase of Micro Warehouse's assets constituted "fraudulent transfers" under the U.S. law, according to CDW's 10-K report for 2003. The company filed the report with the SEC on March 12.

A fraudulent transfer is a transaction occurring within a year prior to a bankruptcy petition filing, whereby creditors receive less than the asset's reasonably equivalent value.

When CDW announced its purchase of Micro Warehouse Sept. 8, it indicated that Micro Warehouse had annualized August sales of about $900 million, trailing 12-month sales of around $40 million at its Canadian operations, existing inventories worth about $14 million and intellectual capital, including trademarks and copyrights.

"CDW believes that its transaction with Micro Warehouse did not constitute a 'fraudulent transfer' as it believes that it paid reasonably equivalent value for such assets," said the company's 10-K report.

"CDW expects that the outcome of the committee's inquiry in this matter will have no material effect on CDW's financial condition," the filing said.

Barbara Crystal, CDW's senior manager of public relations, said that it was the company's policy not to comment on pending and potential legal proceedings.

CDW's net sales reached a record $4.7 billion in 2003, a 9.4 percent increase over $4.3 billion in 2002. The company attributes around half of this growth to its acquisition of Micro Warehouse's customers. CDW's net profit was $175.2 million in 2003, a 5.4 percent drop from $185.2 million in 2002.

Public sector sales, which includes local, state and federal government and educational institutions, hit $1.1 billion and accounted for 23.3 percent of the firm's total 2003 sales.