Fighting for a landmark

JOHN DeMONT August 22 1988

Fighting for a landmark

JOHN DeMONT August 22 1988

Fighting for a landmark



From the beginning, the strange saga and bizarre cast of characters have scandalized the pinstriped British business world. Three years ago, mysterious Egyptian financier Mohamed Al-Fayed touched off the most acrimonious business war in recent British history when he bought House of Fraser PLC, the parent company of London’s world-renowned Harrods department store, from under the nose of flamboyant British industrialist Roland (Tiny) Rowland. Since then, the feud has cost the combatants millions of dollars in legal fees and has generated hundreds of newspaper headlines. It has also entangled a colorful range of other participants, including the Sultan of Brunei, reputedly one of the richest men on earth, and a controversial Eastern mystic. And now the Conservative government of Margaret Thatcher is also about to be drawn into the fray.

Early next month, the United Kingdom’s department of trade and industry is scheduled to release the results of its 15-month inquiry into the background of Al-Fayed’s acquisition of House of Fraser, which owns Harrods and another 75 department stores throughout Britain. The report’s contents and recommendations have been closely guarded by DTI officials. But Maclean's has learned that the report will be much more sensational than originally thought. Some analysts say that it will criticize the circumstances surrounding the takeover, including the conduct of officials with the investment firm Kleinwort Benson Lonsdale PLC, who acted as advisers to AlFayed during the takeover and who were instrumental in providing the credibility needed for the outsiders’ bid to succeed. As well, the report is also expected to be critical of the conduct and vigilance of the British government during the takeover—and that could lead to a reappraisal of Britain’s entire system for regulating takeovers.

Rowland says that he hopes the anticipated criticism will force British Trade Minister Lord Young to refer the takeover to the Monopolies and Mergers Commission, which could or-

der Al-Fayed to sell off his House of Fraser holdings. And that could mean that Rowland and his company, Lonrho PLC, might have another chance to buy the House of Fraser, which he says he has coveted since 1977. Some observers, including Andrew Hughes, an analyst with London brokerage house Hoare Govett Ltd., say that it is unlikely that AlFayed will be forced to sell out. And meanwhile, Al-Fayed, who has already sold 12 of the chain’s stores in outlying regions and has made significant management changes since taking control, says that he will never give up the company. Regardless of what the much-anticipated government report states, he says that he is confident he will remain in control. Said Al-Fayed: “There is no way I’ll sell Harrods. It will be in my family for 1,000 years. I know that, and so does Tiny Rowland.” Rowland says that he greatly wants to acquire Harrods, perhaps the finest department store in the world, which investment analysts say accounts for about 60 per cent of House of Fraser’s annual profits. Owning the posh Knightsbridge flagship store would help give an air of respectability to the controversial Rowland. For nearly 140 years, a visit to Harrods has been a must for visiting royalty and millionaires. But Rowland’s takeover plans were stalled in 1981 after the Monopolies and Mergers Commission ruled that a takeover by Lonrho was not in the public interest because it would limit competition. In 1983, Lonrho, which had two members on Harrods’ board of directors, even attempted unsuccessfully to have Harrods sold off as a separate company. That would have allowed Rowland and Lonrho to buy it through the stock market.

It was Rowland himself who handed control of House of Fraser to Al-Fayed. In September, 1984, lawyers acting for the then-relatively unknown Al-Fayed announced that he was making an offer. Rowland, his own plans for control delayed by the earlier commission ruling, decided to sell his 29.9-per-cent stake to Al-Fayed for a $114million profit. Rowland said that AlFayed lacked the financial influence to follow through with his takeover plans.

And Rowland added that it was unlikely the British government would give a foreigner the goahead to take control of the country’s most famous store. But Rowland was wrong on both counts.

After Lonrho sold its shares to AlFayed, the department of trade reversed its 1981 ruling against Lonrho, clearing the way for anyone to try to take over the company. Minister of Trade Norman Tebbitt then waved the Al-Fayed bid through in an unusually speedy 10 days. And in March, 1985, the Egyptian bought control of the company on the open market for an additional $668 million.

Since then, a bitter Rowland has been waging a propaganda war of epic proportions against Al-Fayed. Rowland has privately published a long diatribe outlining what he re-

0 ferred to as Al-Fayed’s 30s year history of questionable u business practices. As well, =j The Observer, a Liberal-lean| ing Sunday newspaper owned § by Lonrho, has published 1 several reports stating that § crucial claims Al-Fayed made

about his background and wealth were exaggerated. The Observer and Rowland have also contended that AlFayed borrowed the money to buy the House of Fraser from the Sultan of Brunei, for whom Al-Fayed has acted as a business adviser and financial go-between. Rowland claims to hold proof in the form of a taped conversation between Al-Fayed and a swami named Nemi Chandra Gandhi, who had first introduced Al-Fayed to the sultan. Rowland says that the mystic—who was arrested in New Delhi on fraud charges earlier this year—sold the tapes to Rowland for $2 million. Meanwhile, the sultan has steadfastly denied that Al-Fayed used his money to buy House of Fraser. Al-Fayed’s response to the charges is unequivocal: “I am a very wealthy man. Of course I had the

money to buy House of Fraser.” Rowland has long been a magnet for controversy. As chairman and 17per-cent owner of Lonrho, he presides over a $6-billion London-based conglomerate whose companies turn out everything from beer to The Observer. Rowland’s influence is particularly strong in Africa, where Lonrho’s interests include Mercedes-Benz dealerships, gold mining, brewing, newspaper publishing, hotels and farming. But the mercurial Rowland has won his share of enemies among the British Establishment. Indeed, some London businessmen say that his failure to acquire Harrods has been largely due to the fact that many people in London’s business establishment disliked him. And in Al-Fayed, Rowland has an especially formidable enemy.

Al-Fayed has already sued Lonrho’s Observer for libel. A clearer measure of his determination can be found in the $7 million in legal bills that he has run up since last year—compared with $19 million by Rowland.

Al-Fayed, who has worked tirelessly to be accepted by British society, is secretive about his background and the extent of his wealth. But one thing that is clear is that he has been an influential adviser to oil-rich Arabs—including the Sheik of Abu Dhabi and, more recently, the Sultan of Brunei. The Al-Fayed family’s interests are now said to range from the Ritz Hotel in Paris to banking and oil leases in Texas and a Mediterranean shipping line.

Al-Fayed, who is sometimes seen with Prince Charles and Diana, Princess of Wales, has consistently said

that the funds for the House of Fraser purchase came from private business operations in Switzerland. But during the past 15 months, DTI inspectors have been examining the route travelled by the funds that were used to make the acquisition, going through Al-Fayed’s bank accounts and paying particular attention to the timing of each of the transactions. In any event, there seems little doubt that criticisms contained in the upcoming report will fuel still further Tiny Rowland’s accusations. And the nasty corporate fight could well become a full-fledged political scandal for the British government.