EXCLUSIVE: A secret plan by a Melbourne based distributor to take distribution of Harman Kardon and JBL products away from Sydney based Convoy has been revealed during a Federal Court case in Australia. The project was apparently supported by over 35 specialist dealers.
The court heard that in 2003 the CEO of Castel Electronics the then distributor of Toshiba products in Australia hatched a plan to extend Castel’s business by moving into the high end sound market. At one stage during negotiations Castel executives told Harman executives that they were prepared to “buy” Convoy.
Supporting him he claims were several CEDIA members and specialist Hi Fi dealers.
In a witness statement submitted to the Federal Court Michael Kwong the CEO of Castel said that he was involved in the formation of a group of specialist Hi-Fi retailers known as “Australian Consumer Electronics Specialists” and later as “AV Specialists.”
Kwong claims that 75% of the members of AV Specialists organisations would have supported “Harman” brand products had Castel become the Australian distributor.
Castel also appointed Paul Clarke as General Manager of a new audio division as part of the project.
In September 2003, Mr Kwong, accompanied by Paul Clarke, visited the offices of Harman International in Paris where they met Phillipe Rinckenberger, Harman’s Sales Director – Distributor Market and Cyril Vincienne, Harman’s Area Sales Manager for the Middle East, Africa and Oceania.
A PowerPoint presentation made by Clarke and Kwong revealed “Castel is interested in distributing the Harman Kardon brand in the Australian market. JBL and Infinity are also of interest.”
As a result of the meeting in Paris Mr Cyril Vincienne of Harman visited Castel in Australia to appraise its resources and operations in Australia.
A further meeting occurred at Harman’s European headquarters in France on 13 and 14 April 2004 when Mr Kwong and Mr Clarke made a further presentation to Mr Rinckenberger, Mr Vincienne and several other Harman executives.
That presentation revealed that Castel was “ready for expansion” and expressed its interest in “Harman Kardon, JBL home and car and Infinity home and car products”.
“We are prepared to openly discuss any opportunity to secure these brands either by direct negotiation with Harman International or by way of acquisition of the current distributor, Convoy International” Kwong told Harman executives.
The presentation also indicated the resources which Castel would dedicate exclusively to selling and servicing the Harman brands in Australia.
The presentation made by Kwong, acknowledged the existing presence in Australia of Convoy International (“Convoy”) as a distributor of certain Harman brands, and outlined the expected impact on the Australian market if Castel were to become the distributor in place of Convoy.
Castel claim that after the meeting in April 2004, Harman offered to appoint Castel to be its Australian distributor of “Infinity” brand speakers and car audio products and indicated its willingness to extend the distributorship to further brands after Castel had demonstrated a period of successful trading in the “Infinity” products.
Nevertheless, Harman was not prepared to displace Convoy as the distributor of Harman’s brands, which it was then distributing (Harman, Kardon and JBL). That had been made clear to Castel as early as 2003.
Harman told Castel that they would only appoint them distributor of the Harman and JBL products if a totally satisfactory arrangement could be reached between Castel and Convoy.
It then emerged that on 22 April 2004, Castel entered into negotiations with Mr McInnes, the Chairman and Managing Director, and Mr Matthews the Technical Marketing Director, of Convoy to try and buy the business.
At a meeting on 22 April 2004, Mr McInnes of Convoy indicated that he regarded the value of Convoy’s goodwill attached to the Australian distributorship of the Harman and JBL products as in the order of $6 million. He also stipulated that, in the event of acquiring that part of Convoy’s business, Castel would have to take over Convoy’s liability to support warranties to purchasers of Harman products which had been distributed by Convoy.
At one stage Castel claim, Convoy was willing to withdraw from selling Harman goods for an appropriate price. I was prepared for Castel to pay a figure of the order arrived at by a major accounting firm plus a sensible amount of premium. if necessary. There was more work to be done to reach agreement as matters stood at the end of May 2004.
Despite their efforts Harman decided to stay with Convoy who still have the JBL and Harman Kardon business today.