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The Observer
Sunday, 24 March 1985
The Al-Fayed enigma remains
by JIM LEVI, Deputy Editor, Business
SHAREHOLDERS in House of Fraser will learn little about the new controlling shareholders in the largest department stores group in Britain from the offer document they receive tomorrow.
Although the offer document for the Al-Fayed family's £615 million bid for Fraser runs to 28 pages, their merchant bankers, Kleinwort Benson, have managed to distil all the information they want to give about the bidders into two brief paragraphs on page six. Although there is an appendix on the finances of the bidding company, Alfayed Investment Trust and its Liechtenstein parent, this gives few clues to anyone attempting to understand how the cash for the bid became available.
The document describes the Al-Fayeds as 'an old-established Egyptian family which has interests in the USA, Europe and the Middle East which include, in particular, shipping, construction, oil, banking and property.'
The interests listed range from oil exploration in the Middle East, to banking in Texas, property in London's Park Lane, the Champs Elysées in Paris and the Rockefeller Centre in New York, the Ritz Hotel in Paris and estates in Scotland and Switzerland. It would seem that, in themselves, these assets would not provide the resources to finance the bid.
The appendix on the bidding company also preserves the Al-Fayed enigma. The Liechtenstein company's 'only significant asset,' it says, is its holding of shares in, and loans to, the UK bidding company Alfayed Investment
Trust [AIT]. The Liechtenstein company is itself 'currently funded by interest free loans from Mohamed, Salah and Ali Al-Fayed and by bank borrowings.'
John MacArthur, of Kleinwort Benson, insisted yesterday: 'We are entirely satisfied the resources for the offer are there, freely available and clearly owned by the Al-Fayeds.'
Kleinworts are stressing in any case that a business empire like the Al-Fayeds, owned equally by the three brothers, does not have a balance sheet or a profit and loss account.
Kleinworts argue that it is much more important from the public interest point of view to know what the Al-Fayeds' long-term plans are for Fraser. Their undertakings in this regard are 'much stronger and firmer than are normal in an offer document.'
The most significant commitment is to retain the present structure of the stores group. There will be no spin off of Harrods.
Chairman Professor Roland Smith received a £30,000 bonus last year, the offer document reveals, and from 1 February his salary doubles to £100,000. Fraser profits for the year to January 1985 rose from £38.8 million to £48 million, directors estimate. But earnings per share are forecast to fall from 18.9p to 18p, presumably because of a higher tax charge.
Meanwhile there is no sign that the Al-Fayeds intend their interests ever to be anything other than privately held. So anxious are they to own Fraser lock stock and barrel that they intend to replace the existing executive share option scheme with their own profit-sharing plan.
The final irony of the offer document is, of course, the happy acceptance by Kleinworts of the Al-Fayed decision to route the bid through Liechtenstein: The bankers have not always been so relaxed about this tiny European principality.
Defending John Waddington against the bid from Robert Maxwell's British Printing and Communications Corporation, Kleinworts laid great stress on the ultimate ownership of BPCC. It was something they were unable to discover because BPCC's ultimate controlling shareholder is a Liechtenstein Foundation.
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