Institutions may sue Wickes
Tuesday 02 July 1996
Large shareholders will decide their next step once Wickes has established the full extent of a profits overstatement scam that may have cost pounds 20m last year alone. A report into the accounting irregularities begun last week may not be concluded for another fortnight, sources close to Wickes suggested.
Several leading DIY retailers, including Kingfisher, owner of the B&Q chain, have already indicated their potential interest in Wickes' 108 UK stores.
"Obviously the credibility of a company is dented when this kind of thing happens and it also dents the price, but there is an underlying business there that should be interesting to somebody," said an institutional investor.
If a bid fails to emerge, investors could try to force through more boardroom level changes to instil confidence in the company.
Henry Sweetbaum, former pounds 1m-a-year chairman and chief executive, became a senior management casualty when he resigned last Wednesday, the day after the scale of the problem became apparent. Finance director Stuart Stradling is also set to go once the current investigation being carried out by auditors Price Waterhouse and law firm Linklaters & Paines is over. Wickes has also suspended two managers pending the result of the internal inquiry.
The initial investigation estimates that profits may have been overstated by as much as pounds 40m-pounds 50m over the last few years.
The overstatement of profits mainly relates to payments made by suppliers to secure contracts with Wickes. The company apparently encouraged suppliers to pay in advance a percentage of the additional profit that would be generated by new store openings. This had the effect of inflating profits in the first year and boosting bonuses for management.
Shares in Wickes remain suspended at 40p, having almost halved last week on news of the accounting problems.
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