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Tom Reeves is polite but there's a tinge of exasperation in his voice. The Merisel Canada president, hard to reach these days as a result of back-to-back meetings, has nevertheless grabbed a few minutes to set this journalist straight via telephone. No, Merisel is not on the verge of bankruptcy. No, vendors and customers aren't jumping ship. Yes, the company's stock took a dive of one-third in the wake of Merisel Inc.'s April 14 "debt restructuring" announcement but that didn't surprise Reeves because, after all, it's a "complicated" restructuring process that investors don't understand and, besides, everyone knows the vagaries of Wall Street. Merisel's situation, Reeves says, "reminds me of the Mark Twain line: 'Rumours of my death have been greatly exaggerated.'" Exactly what has happened to put Wall Street in a spin is, as Reeves suggests, complicated to understand unless you've been through a major financial restructuring yourself. Last month Merisel -- the third largest distributor in the United States and number two in Canada -- announced that 75 per cent of its public debt holders had agreed to convert their debt to equity. In other words, instead of the company owing them,they would own a part of the company. But -- a "but" that has fuelled critics' fire -- unless a full 100 per cent of debt holders agree to this plan, Merisel must go with Plan B: a "prepackaged plan of reorganization" under the dreaded Chapter 11 of the U.S. bankruptcy code. Chapter 11 instills fear and trembling in financially troubled companies because of the stigma it holds as a bankruptcy protection measure. "The first reaction is, 'Oh my god, they're going to go bankrupt,'" says Reeves. Preferring to avoid Chapter 11, Merisel will give itself three more months to track down the missing 25 per cent of its public creditors, who hold their credit in the form of bonds. There's no guarantee of 100 per cent approval because "we don't know who all these note holders are," Reeves explains. "Someone who bought [the bond] a while back might have it in a drawer and we can't find it." If Merisel does have to switch to Plan B (Chapter 11), it will execute the same debt restructuring plan but under the auspices of the court. The approval process will take one to three months, Reeves estimates. A point of fact is that the debt-to-equity conversion only affects the holding company, Merisel Inc., which has US$125 million in debt. A further US$155 million is owed by Merisel Americas Inc. -- the operational business comprising Merisel U.S., Merisel Canada and Merisel Open Computing Alliance (its Sun business), which brings in US$5.5 billion in annual sales. Merisel Americas' creditors have extended their maturity date to Jan. 1, 1999, giving Merisel an extra year to put its financial house in order. Dream job for Illson Putting Merisel's house in order falls chiefly to Jim Illson, Merisel's CFO, brought on board by CEO Dwight Steffensen in August 1996. Previously a "turnaround advisor," Illson says he was attracted to Merisel because, "unlike most restructuring, I see this as what I call a growth turnaround. Merisel is in a growth business; our vendors are all growing; our competitors are growing; our business strategy is [sound]; in fact, if we can get our business back on track and get our debt back in line then we can really grow, too." His moves have been swift -- sell off all franchises and foreign operations, then record a profitable quarter. Next, restructure the debt by negotiating with a) public debt holders and b) vendors for better trade credit. "Getting this debt restructured removes the last major external obstacle that we've had to deal with," Illson says. Plans to sell Merisel Canada are long gone. In fact, Illson touts the Canadian operation as "a bellwether for what's happening in this industry -- it's growing faster than the market." A far cry from a year ago, when Merisel Canada was reeling from a disastrous attempt to marry a new SAP administration system with its warehouse operations. The subsequent loss of business contributed to Merisel Inc.'s US$83.9 million loss for 1995. In Canada, the situation is "very different from where we were a year ago," says Reeves, confirming that Merisel Canada expects to reap more than $1 billion in revenues this year. He adds: "I have every confidence the U.S. company is doing the right things." Back on track That a streamlined Merisel may be getting back on track is evidenced in a few factors. The company actually posted a US$1.67 million profit -- its first in two years -- for the fourth quarter of fiscal 1996. And Merisel's 10K year-end report showed a "clean opinion" by auditors that the company would be able to meet its debts for the rest of the year. Finally, the value of debt holders' bonds escalated considerably after the April 14 announcement. Merisel's tough sell comes now. It must convince vendors, shareholders and resellers to forget the barrage of bad news and concentrate on the good stuff. According to Illson, major vendors are firmly in the company's corner. "At the risk of sounding too bullish, we got them excited about the growth prospects here." Rallying vendor support is crucial, says John Bailey, vice-president of MSI Consulting Group, a Seattle, Wash.-based channels research organization. "The vendors' perception of Merisel's health will have a lot to do with how much flexibility they're willing to extend [in credit terms] and how much more scrutiny they'll subject key statistics to, such as inventory returns. And if the vendors start to lose more confidence, that could be self-fulfilling." Merisel's position in the market makes it unlikely that suppliers will pull the plug too hastily. A lot of companies in Canada -- resellers included -- have a vested interest in keeping Merisel healthy, says Michael O'Neil, vice-president of channels at IDC Corp. (Canada) Ltd. "They [Merisel] are effectively extending $1 billion worth of credit into the high-tech industry. Take that credit out of the market and it's gone." Roger Vander Beek, president of The LAN Shoppe Inc. in Toronto, says his company will stand behind Merisel. "They'd have to go out of business for us to switch to another supplier. We have our favourite reps working there, and we get a fair shake from them. There wouldn't be any reason to change just because there's a rumour that they may go into some difficulties." Other partners' loyalties will rest on Merisel's ability to conduct business as usual. Len Cater, president of operations at GE Capital, says Merisel rivals Ingram Micro and Tech Data are "banging on the door," waiting for Merisel to make a false move. "If there is any truth to Chapter 11, potentially we will change our position," Cater says. "We do track closely the average lead time for filling orders and if we start to see that sliding out, we'll switch fairly quickly." On the other hand, he credits Merisel's Reeves with shielding the Canadian operation from its parent's financial stress. "They tend to bend over backwards for us in Canada." Bend, and hopefully not break, under the scrutiny of the next few months. Can Merisel pull through? It already has, says Reeves, who believes the company is focused, sound and poised for further growth. "For the last two years, people have been calling up and asking about Chapter 11," he says. "What they don't understand is that this is not a crisis situation." Merisel: No stranger to debt April 1997 -- 75 per cent of public debt holders agree to exchange their share of Merisel Inc.'s US$125 million debt for equity in the company. March -- Merisel completes sale of subsidiary Merisel FAB Inc. to ComputerLand Corp. Liabilities assumed by ComputerLand include US$20 million due to Vanstar Corp. February -- Former Arrow Electronics executive Bob McInerney appointed president and COO. Merisel posts 0.4 net profit of US$1.68 million (compared with 0.4 1995 net loss of US$77.26 million). Retains DLJ to help with "debt restructuring." November 1996 -- Merisel posts Q3 net loss of US$117 million (compared with Q3 1995 loss of US$253 million). Merisel Canada incurs US$9.6 million of that loss through "vendor reconciliation adjustments and other issues." October -- Sale of Merisel's European, Latin American and Mexican businesses to CHS Electronics Inc. is completed for US$160 million. August -- Merisel posts Q2 net loss of US$11.4 million (compared with Q2 1995 loss of US$4.6 million), which includes a US$2.2 million charge for supplier account reconciliation. Jim Illson takes over as CFO and senior vice-president from James Brill. May -- Merisel posts net loss of US$13.5 million for Q1 1996 (compared with Q1 1995 loss of US$1.8 million). This includes a US$6.7 million hit for "amending Merisel's financing agreements," and paying severance to former CEO Michael Pickett. February -- Dwight Steffenson, formerly CEO of giant pharmaceutical distributor Bergen Brunswig Corp., takes over from Pickett as Merisel Inc. chairman and CEO. chairman and CEO.