Shoe maker collapse threatens 2,500 jobs

Footwear decline: Institutional investors face heavy losses as receiver is called in to ailing Chamberlain Phipps
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The Independent Online
More than 2,500 jobs were under threat last night, 400 in the UK, as shoe manufacturer Chamberlain Phipps collapsed into receivership after only two years on the stock market. The collapse, which has left big institutional investors including Legal & General and PDFM nursing heavy losses, brought to an end one of the most controversial listings in recent years.

Shares in the company, which owns a string of shoe brands in North America and France as well as shoe component factories in Northampton, Leicester and Yeovil, were suspended yesterday at 11p after its principal lenders, Bank of Scotland and Credit Lyonnais, called in loans of pounds 34m. At the suspension price, Chamberlain was valued by the stockmarket at only pounds 5m, compared to pounds 73m at flotation, and it is thought extremely unlikely there will be anything left for shareholders.

The rapid decline of the company puts the spotlight firmly on what one observer described as a catalogue of corporate governance issues. During its two year life as a quoted company Chamberlain raised eyebrows several times thanks to a controversial salary and bonus structure, its open contravention of the Cadbury guidelines and a string of profit warnings.

Initially there were no signs of problems at the company, which had been a management buyout from Evode, the chemicals company that acquired it in 1989. After its return to the market in August 1994 at 165p it appeared to perform well for its first 14 quoted months.

Profits for the year to April 1995 were a record pounds 12.4m, compared to pounds 4.4m a year earlier, and Dan Sullivan, the American venture capitalist who had joined Legal & General Ventures in funding the buyout and still owns 25 per cent of the shares, ended his annual statement to shareholders with the promise of "numerous opportunities for growth, both organic and by acquisition".

He also took the opportunity to award himself a bonus of almost 100 per cent of his base salary, pounds 293,000 out of a total remuneration for the year of pounds 601,000, or 5 per cent of total group pre-tax profits. Contrary to Cadbury committee guidelines, Mr Sullivan had combined the roles of chairman and chief executive and sat at the head of the remuneration committee.

Four months later, in October 1995, the company issued its first warning and a quarter of the stockmarket value of the company was wiped away when the shares fell 35p to 93p, barely half the flotation level.

The company blamed a slump in orders on falling consumer spending both in the US and UK where the company supplied components to other shoe manufacturers and in France where it had recently acquired a number of brands.

Mr Sullivan had courted controversy at the time of flotation when the Stock Exchange ruled that two of its French acquisitions were so recent that they could not be consolidated in the company's prospectus. Undeterred he made two more offers for French companies within six months of flotation but because of the market's increasing suspicion of the company was forced to pay for deals with cash which sent borrowings sky high.

By May this year, trading had deteriorated to the extent that a profits warning forced house broker Credit Lyonnais Laing to reverse a pounds 6m profit forecast for the year to April into a pounds 5m loss estimate.

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