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The Financial Times, 2 August 1988 (page two of two) |
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(Continued from overleaf)
The formal documents stated that the bid was being financed from "the existing resources and normal trading facilities" of the Fayed family. But the normal facilities of the businesses in Kleinwort's submission to the OFT could scarcely have been adequate to bridge the gap. The question, then, is whether substantial additional borrowings were raised to finance the acquisition. Documents at Companies House relating to House of Fraser Holdings, the shell company through which the bid was launched, appear to lend support to this: both Swiss Bank Corporation and Samuel Montagu turn up there as lenders. By 1987 the company had no less than £553m of borrowings. Meantime the stores subsidiary's £45m profit fell short of more than £50m of interest payable on the holding company's debt. So the ability of the Fayeds' other businesses to plug that income deficit now has an important bearing on the future fortunes of the stores group. Yet the brothers' solicitors, Herbert Smith, have said in response to the Channel 4 programme that these borrowings were not financing the original acquisition, but resulted solely from a refinancing of funds previously provided by the Fayeds; the stores group's profits were then offset against the shell company's interest liabilities to reduce tax. So the mystery deepens. All that can be said with certainty is that had more details of the Fayeds' business and financing arrangements been revealed from Liechtenstein in 1985, the government would have had pause for thought. Especially in a climate that was to lead to the referral of Elders IXL's subsequent bid for Allied-Lyons because of heavy borrowings. Does it really matter if the Fayeds made false and misleading statements in a bid for a company that was scarcely vital to the British economy? Or that Kleinworts and John MacArthur unwittingly propagated them? In the public interest, control of leading companies clearly cannot be allowed to change on the basis of false information. And with the internationalisation of capital markets and Britain's openness to foreign bidders, signs of regulatory weakness would constitute an open invitation to some very unsavoury characters. The failure was arguably more one of people and institutions than of the system itself. Prime responsibility for the statements, which violated general principles of the Takeover Code, lies with the Fayeds. Yet Kleinwort Benson can hardly escape all criticism, especially in view of the reliance placed on its pronouncements by all involved. Government, PR men, and press, meantime, were less than vigilant in the affair. Any criticism from the DTI inspectors will pose a dilemma for Trade Secretary Lord Young. Is it worth referring the bid to the Monopolies Commission, so opening up the possibility of a recommendation that the Fayeds be forced to divest? The shareholders, after all, emerged with a good price. The underlying company is profitable, even if its net borrowings have increased more than threefold since the bid to £348m and several stores have been disposed of. Apart from the government, which has been made to look foolish, the main aggrieved party is Lonrho; but since Lonrho sold its stake voluntarily to the Fayeds, it commands little sympathy. There is no easy answer. But first, the inspectors must have their say. Channel 4's programme "The Harrods Sale" was made by Box Productions and presented by John Plender. |
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