Zones Chairman Acquires 5% Stake In Rival PCM, Setting Stage For Possible Takeover

Firoz Lalji, chairman of Auburn, Wash.-based national solution provider Zones, has quietly invested in rival PCM, though it's not clear at this stage whether his investment is a prelude to an acquisition or hostile takeover.

In an SEC filing last month, Lalji revealed that he and his wife Najma have acquired 5.02 percent of the shares of El Segundo, Calif.-based PCM, formerly known as PC Mall.

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In the SEC filing, Lalji said he believes PCM's shares are "grossly undervalued and represented an attractive investment opportunity." He also said he thinks PCM has been "poorly managed" and is "one of the poorest-performing companies in its industry channel."

"Over the past three years (PCM) has seen no revenue growth, stagnating at approximately $1.4 billion annually, and has cumulatively generated net income of approximately $16.4 million on revenues of approximately $4.26 billion, which the (Laljis) believe represents a wholly-unacceptable level of 0.4% of revenue," Firoz Lalji said in the filing.

PCM CEO and founder Frank Khulusi is "compensated at unreasonably higher levels than those of his peers at similarly-sized companies," Lalji said in the filing, adding that he and his wife plan to discuss their concerns with the PCM board of directors.

Lalji and his wife are "exploring ways to enhance stockholder value and to generate financial performance no less than the median levels when compared with (PCM's) competitors, as well as evaluating whether a change in management is appropriate and whether (PCM) should remain an independent public company," he said in the filing.

One channel source, who did not want to be identified, said Lalji "certainly did not buy five percent to be a passive investor. PCM's shareholder performance is horrible. He is going to agitate and ferment change."

The source said the large national solution provider landscape populated by the likes of Zones, PCM, Insight Enterprises, and CDW is ripe for consolidation.

PCM's EBITDA (earnings before interest, taxes, depreciation, and amortization) was 1.9 percent during its last fiscal quarter, compared to 3.3 percent for Insight and 7.4 percent for CDW during the same period. Zones is a private company and does not report EBITDA.

"For PCM to generate as much profit as Insight they would have to do 70 percent more revenue," said the source. "This is a slow growth IT environment. PCM has to get more efficient."

Lalji declined to comment on the investment in PCM. A Zones spokesperson told CRN the Laljis' investment is a private matter involving their personal funds.

PCM did not respond to requests for more information.