Gadget Shop feud sparked by dispute over acquisitions

The shareholder row that forced The Gadget Shop into administration yesterday was triggered by a dispute over Birthdays, the greetings card chain sold by Tom Hunter last November for a £2m loss, according to sources close to the group.

The shareholder row that forced The Gadget Shop into administration yesterday was triggered by a dispute over Birthdays, the greetings card chain sold by Tom Hunter last November for a £2m loss, according to sources close to the group.

Peter Wilkinson, the Freeserve designer and 20 per cent shareholder in The Gadget Shop, and Jon Wood, a UBS trader and fellow investor, are furious that they were allegedly sidelined when Mr Hunter's West Coast Capital bought Birthdays in September 2003.

The disgruntled duo, who control 40 per cent of The Gadget Shop, launched legal proceedings against Mr Hunter and his business associate Chris Gorman last year, claiming the renowned Scottish entrepreneurs broke an agreement to use the chain as a vehicle to acquire other retailers.

One source close to the dispute said: "It's heading for a court date and it needs to be settled by a judge."

The first retail target for The Gadget Shop was to have been Birthdays, and the two groups already had a pre-existing cross-selling arrangement between them. But Mr Hunter chose to use his private investment vehicle, which has stakes in a number of companies such as Philip Green's Bhs, to buy Birthdays instead.

The deal was not a success, and intense competition from supermarket stores prompted Mr Hunter to sell Birthdays on to Clinton Cards for about £14m less than it was bought for.

Mr Wilkinson is understood to have filed a petition against Messrs Hunter and Gorman under section 459(1) of the Companies Act, asserting that he was unfairly prejudiced by the company's majority shareholders. Neither Mr Wilkinson nor Mr Wood could be reached for comment last night.

The Gadget Shop was forced to appoint PKF as administrator after talks with a possible buyer collapsed due to the impending legal action, which also promoted the retailer's banker, Bank of Scotland, to withdraw its support. The uncertainty over the technology retailer's future has put 750 jobs at risk.

Bryan Jackson, a partner at PKF, said yesterday he hoped to sell the business as a going concern. He said he had received a handful of "genuine expressions of interest at an early stage". The business, founded in 1991 by Jonathan Elvidge, will continue trading while PKF seeks a buyer, the accountancy firm said.

Mr Gorman, the executive chairman of The Gadget Shop, said: "We have built an exceptional brand. I am confident that a buyer could build on the foundations of that excellent brand and allow the innovation of the business and its products to continue and develop."

Mr Gorman and Mr Hunter declined to comment on the dispute with Mr Wilkinson.