BUSINESS WATCH

The rewards of going native

Peter C. Newman August 15 1988
BUSINESS WATCH

The rewards of going native

Peter C. Newman August 15 1988

The rewards of going native

BUSINESS WATCH

Peter C. Newman

A couple of incarnations ago, as editor-in-chief of The Toronto Star, which then considered itself—and still does—the house organ of Canadian nationalism, I was writing so many nasty stories on multinational corporations that my office became a regular port of call for the American corporate honchos then (and now) gobbling up Canadian industry. These visiting Genghis Khans came by the dozen. The visitor I remember best was Joseph Cullman 3rd, head of the huge Philip Morris conglomerate, which was taking a run at Carling O’Keefe. An oversize Texan who looked as if he made love with his boots on and who kept excusing his lapse into obscenities with the winking admonition “Pardon my French,” Cullman had obviously been briefed.

His PR man must have told him that the Star was on a campaign urging multinationals to hire indigenous boards of directors and issue stock in their Canadian subsidiaries. It had to be that, because when I asked about his intentions if his company acquired Carling, Cullman looked as pleased as if he had just been dealt a winning poker hand. “Hell,” he said. “Don’t worry. We’re going native on this deal!”

Cullman and his posse of simplistic marauders have mercifully vanished from the scene, but the takeovers continue. Among the largest and most significant recent buy-out was the $2.6-billion purchase by Allied-Lyons of Hiram Walker-Gooderham & Worts Ltd. of Windsor, Ont.—and, just as Cullman represented the worst of America’s frontier corporate ethic, Sir Derrick Holden-Brown, chairman of Allied-Ly•ons, is typical of the best of the new breed of sophisticated global entrepreneurs.

Allied is the world’s fourth-largest (but second-most profitable) distiller and Britain’s second-largest brewer. It operates 7,000 British pubs, and its various subsidiaries make such famous products as Double Diamond beer, Harvey’s sherries, Teacher’s scotch, Tetley tea and Baskin-Robbins ice cream. The Walker purchase gave the British company the right to market such wellknown labels as Ballantine’s, Canadian Club and Courvoisier—as well as being able to use Walker’s well-developed North American selling organization to distribute its existing brands.

Unlike most parent companies who take over going Canadian concerns, Al-

lied has listed itself on the Toronto Stock Exchange (by issuing 17.7 million shares) and instead of firing the chief executive officer of its new subsidiary, has placed him within the top of its head-office echelons. Sir Derrick, chairman of Allied since 1982, ranks high in the British business establishment but was not born into it. He left school to join the Royal Navy (after articling for one year as an accountant) and served in the North Sea, Mediterranean and

Adriatic on a rise to his first command in 1943. “My management style hasn’t changed since,” he told me in his London office. “I wanted to have a ship that was efficient, successful and happy. A good team, whether it’s on a warship or in a company, needs face-to-face communication at very frequent intervals.” After the war, Sir Derrick joined Hiram Walker’s London office as a management trainee and stayed for five years, becoming familiar with the company he would buy nearly four decades

later. He moved up through British breweries and distilling firms, earning enough points to be knighted by a Labor government in 1979, although he has since become an ardent Thatcher confidant and adviser. Photographer Lord Snowdon has been hired to illustrate his company’s annual reports.

Sir Derrick’s Walker purchase was the result of two miscued takeover attempts. Australian financier John Elliott’s Elders IXL Ltd. was threatening to swallow Allied, and the Canadian takeover acted as a poison pill by turning the British company into too big a pill to swallow for the Aussie’s means. Meanwhile, the Reichmann brothers had launched their own takeover attempt through Gulf Canada. Since the Allied takeover, Clifford Hatch Jr. has moved across the Atlantic as the parent company’s chief financial officer, while David Beatty, the forceful former chairman of Harveys of Bristol, has been assigned to run the Windsor company, which is rapidly being integrated into Allied’s international operations.

One of Sir Derrick’s main problems was to reach an accommodation with the Reichmanns, who do not appreciate having profitable enterprises snatched from their grasp. The brothers emerged with 49 per cent of Walker stock from the original struggle and, last December, agreed to swap it for—eventually— 10 per cent of Allied’s issued stock. That makes the Canadian real estate tycoons Allied’s largest shareholders and, not unnaturally, the issue of giving the Reichmanns a seat on the board came into play. “They didn’t really ask for it,” said Sir Derrick, “and I did point out that such a move would send the wrong signal to the world at large because we do have other major shareholders. They didn’t press the matter at all, and although we do have a standstill agreement, I don’t regard our partnership as having been terminated.”

Perhaps because Sir Derrick is so determined to maintain his own company’s independence, his handling of Walker’s has been relatively benign, and the Canadian company is flourishing under his direction. Last year’s after-tax profit of the British holding company reached $1 billion for the first time, up a startling 28 per cent from the year before. Most of the jump came from the Canadian operation—and that is where a substantial portion of the future expansion funds will be invested. Perhaps when doing business in Canada, it does pay to go native, after all.