The Observer Harrods: The questions that won't go away
Sunday, 12 April 1987
'It was bound to happen,' says Tiny Rowland, chief executive of Lonrho. The DTI has finally bowed to pressure and launched an inquiry into the takeover of House of Fraser by the Fayed brothers.LORANA SULLIVAN reports
Last Thursday Trade & Industry Secretary Paul Channon made Tiny Rowland, Lonrho's chief executive, a very happy man.
Channon finally appointed inspectors under the wide-ranging powers of Section 432 of the 1985 Companies Act to investigate the circumstances surrounding the controversial take-over by the Egyptian Fayed brothers of the House of Fraser, the Harrods stores group, in 1985.
'It was bound to happen,' said Rowland, who has fought tooth and nail for more than two years to have the £615 million acquisition referred to a government body for review.
Rowland has always believed that Lonrho was wronged by the government, which allowed Mohamed Fayed to bid for Fraser without a reference to the Monopolies and Mergers Commission, and at the same time failed to release Lonrho from its undertakings not to make a full bid until it was too late.
This surprise twist in the 10-year old Lonrho-Fraser saga began in the autumn of 1984 when Lonrho, whose bid for Fraser had been referred to the Monopolies Commission, believed that the MMC would refuse it permission to bid. Lonrho had a 29 per cent holding in Fraser which it decided to sell, believing that the MMC would allow it to bid if it had started from scratch.
Lonrho on 2 November 1984 sold its Fraser holding to Mohamed Fayed for £138.3 million.
Fayed made a £615 million bid for the rest of Fraser on 4 March 1985. On 7 March the Monopolies Commission finally stated that a proposal by Lonrho to acquire Fraser 'may not be expected to go against the public interest.' But it was not until 14 March that the then Trade & Industry Secretary Norman Tebbit released Lonrho from its undertaking not to make a bid. By then it was too late. On 12 March the Fayeds had raised their Fraser stake to 51.03 per cent. The next day Tebbit announced that he would not refer the bid from the virtually unknown Fayeds to the Monopolies Commission, although very limited detailed evidence had been provided about their assets and certainly not enough to explain their ability to come up with such a vast sum in cash, supposedly from private resources.
Lonrho had known Mohamed Fayed to be a 'commission man', representing British contractors in the United Arab Emirates. He did not believe, therefore, that the Fayed family had the net worth of 'several billion dollars proclaimed by John MacArthur, then of merchant bankers Kleinwort Benson, advisers to the Egyptians.
Neither did he believe MacArthur's statement that the Fayeds 'had neither drawn on bank borrowings nor loans from any other party to make the purchase.' Last month Lonrho issued a writ against the Egyptian brothers, Kleinwort and MacArthur, which, among other things, alleged that the Fayeds had assets of not more than £45 million at the end of 1984. Lonrho claims damages for fraudulent and negligent misstatements to the Office of Fair Trading, the Secretary of State for Trade & Industry, and to the former board of the House of Fraser.
Nor surprisingly, Lonrho's allegations have been contested both by the Fayeds and Kleinwort. The Fayeds have issued three libel writs against The Observer covering a number of articles questioning their alleged vast wealth stemming from a fabulous family background of generations of Egyptian millionaires. Perhaps surprisingly, in the libel actions The Observer has had to apply to the court for an order to make them produce all documents pertaining to their background, their source of funds for the Fraser purchase and their financial position.
On Friday, Michael Hawkes, Kleinwort's chairman, said: 'We continue to take very seriously the allegations made by Lonrho and we have re-examined the matter on several occasions. Confining my comment to the provision of the bid and the funding of the investment, we still believe that the Fayeds had sufficient fortune to make the bid.'
On 10 March 1985 Kleinwort's MacArthur stated on Channel 4's 'Business Programme' that the £615 million bid had been financed via instructions from a major Swiss bank 'which in turn has received funds from another Swiss bank through instructions of the ultimate holding company of the Al-Fayed brothers.
In October 1985 Rowland told the Office of Fair Trading that he believed that in August 1984 the Sultan of Brunei, possibly the world's richest man and whom Fayed had assisted in buying the Dorchester hotel, gave Fayed a general power of attorney to control the investment of certain of his funds held in Swiss banks. Rowland said he believed that $1.5 billion was transferred under that authority to Fayed accounts. Rowland further alleged that power of attorney was cancelled in April 1985 and the Sultan had demanded the return of his funds. Part was repaid, Rowland said, but Fayed had issued a promissory note for $200 million. Rowland contends that some of the Sultan's $1.5 billion was used to purchase House of Fraser. This has been denied by the Sultan.
The Brunei connection has caused considerable speculation concerning the ease with which the Fayed bid was cleared by the Government. Fuelling this speculation has been the revelation that in January 1985, mid-way between the purchase from Lonrho of the Fraser stake and the full bid, Mrs Thatcher met the Sultan in London as a result of which Brunei is said to have switched £5,000 million into sterling to help the pound.