Winnipeg Free Press - PRINT EDITION

Reno in house of McDiarmid

At least three years of financial struggles fuel firm's family feud

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McDiarmid Lumber is in the early stage of a critical restructuring after emerging from a bitter family dispute and the sudden resignation of its president earlier this year.

The lumber and building materials retailer and distributor had long been a beacon for other homegrown companies that have successfully beaten back competitors in the fiercely competitive retail sector. But it was severely jostled by at least three years of losses and significant mismanagement.

The fiercely private family-owned business has been struggling financially and otherwise for at least three years, according to materials filed in court. It's a battle that has pitted aging but well-regarded patriarch Tom Matthews against his son-in-law, Vince Ryz, to whom Matthews agreed to sell the company five years ago.

Ryz's sudden resignation earlier this year paved the way for a much-needed restructuring.

"We needed to protect the company, otherwise it would have gone down the tubes," said turnaround expert Richard Hutchings, newly installed as chief restructuring officer by Matthews.

"We need to fix it so that it can carry on, and we are looking for ways to make sure it continues in a successful way."

Last fall, McDiarmid stores in Brandon and Portage la Prairie were closed, as was a distribution centre in Elie and a ready-to-move homes distribution operation in North Battleford, Sask.

Friday, the company's Western Window and Door division was also shut down.

Hutchings said the 12 employees in that division have been reassigned to other divisions.

"We will be downsizing," Hutchings said, but added that does not necessarily mean closing more stores.

He said management of the ready-to-move homes division needs to be addressed after some recent reports of customer complaints about shoddy product.

He said McDiarmid had many years of very successful operations but started to go downhill about five years ago when Ryz took over.

"The market in Manitoba has been very good for us," Hutchings said.

"The problems the company had are not economically related. They are mismanagement, plain and simple. They had overexpanded and too many unnecessary things were going on."

He said that included two corporate jets that are being dumped.

The dispute between Matthews and Ryz over the company's control and management direction spilled into court last fall.

In dispute was who actually controlled the company -- Ryz, who orchestrated a disputed share issue last fall, or Matthews.

Ryz hung onto his posts for a couple of months after being publicly lambasted by his father-in-law in a sworn affidavit.

In that document, Matthews made clear he was motivated to take legal action against his daughter's husband out of concern for the company's future viability.

"I was... very concerned that the financial circumstances of the company were extremely precarious and the... administration of the corporation was compromised or eroding," he said.

Later in the affidavit, Matthews said: "Whatever his talents in other aspects of the business, finances and the ability to deal with people are not Vince's strong suits and indeed, as the financial pressures have magnified, his behaviour has become increasingly erratic and unreliable."

Founded in 1927, Matthews acquired McDiarmid Lumber in 1966 when it had one lumberyard and 20 employees. Ryz was hired in 1976, became general manager in 1988 and a minority shareholder a year later.

In 2008, Matthews arranged to sell his controlling stake to Ryz when the company had about 450 employees and annual revenue of about $120 million.

But according to court documents, the share-purchase agreement between Matthews and Ryz included conditions on payments Ryz was to make to Matthews.

In his sworn affidavit, Matthews claims the agreed-upon payments were in serious arrears and that subsequent to the sale to Ryz, Matthews and his other companies have injected an additional $10 million cash into the company and signed off on another $15 million in guarantees and indemnities for insurance purposes.

Matthews said he now has "direct and contingent liabilities associated with the corporation of nearly $54 million."

He said that total was more than twice the amount owed to CIBC.

Hutchings said that thanks to Matthews' commitment to restructuring the company -- including committing to investing additional capital and the recent rehiring of a handful of senior managers who left because of unhappiness with how the company was run -- CIBC continues to support McDiarmid.

Since Ryz resigned as president and director and agreed to cede control to Matthews, there is no longer any issue of control of the operations of the company.

Republished from the Winnipeg Free Press print edition March 9, 2013 B6

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