Pop down to your local in the spring of 1986 – maybe to discuss whether Liverpool or Everton would win their forthcoming FA Cup Final (in those days, that cup competition still mattered to football fans). Anyway, stroll down to your boozer, and it would be perfectly normal to ask for a measure of Johnnie Walker Red Label and a packet of Embassy. For the cigarettes, the barman would direct you to the vending machine, which was always next to the men’s toilets. In return for your £1.50, for some strange reason you would receive a special ‘vending’ pack with only 19 cigarettes. Even so, they would come in the familiar red-stripe-on-white carton of Britain’s best-selling cigarette, whose presence had been enhanced by Embassy’s sponsorship of the World Snooker Championships since the year dot. Back at the bar, the Johnnie Walker was equally familiar. Not only was Johnnie Walker the best-selling whisky in the UK, it could also claim to be the world’s number-one brand.
And if you were buying a whisky chaser for a pint of Guinness, then so much the better because, in buying those three consumables, you would have demonstrated why the most bitter battles in the history of UK takeovers were then being fought.
For some, 1986 would be the year when the Space Shuttle, Challenger, disintegrated on take off, or when the Chernobyl nuclear power plant went into meltdown. In the world of finance, 1986 was the year of the hostile takeover, when Anglo-Saxon capitalism was at its reddest in tooth and claw.
In the early months of that year there was a two-way contest to take over Distillers, owner of the Johnnie Walker brand and a venerable Scottish FTSE 100 company whose fortunes had never really recovered since it was snared by the Thalidomide scandal of the 1960s. The rival predators were Argyll, an upstart supermarkets operator that had launched a hostile bid, and Guinness, maker of the eponymous stout, which was cast in the role of white knight – its cash-and-shares offer had been recommended by the directors of Distillers.
Simultaneously – and in another part of the consumer-goods sector – Imperial Group, owner of Embassy cigarettes, was the defender in another savage two-way fight. The white knight was United Biscuits, whose best-known brand was McVitie’s, and the hostile predator was the raptor-in-chief of contested takeovers, Hanson.
In the event, Hanson captured Imperial then rapidly dismembered it so effectively that the proceeds from disposals reduced the £2.5bn outlay to about £200m and that figure was about the same as the annual net cash flow from Imperial’s tobacco division, which was the only bit that Hanson really wanted anyway. Meanwhile, Guinness’s white-knight operation was successful as it secured Distillers, thereby also adding brands such as Haig and Black and White to its own stable.
However, takeover battles were never quite the same again. Partly that was because Imperial’s spirited defence exposed the failings in Hanson’s operation. It became blindingly clear that the group depended on acquisitions for growth, a shortcoming that soon became a generic criticism of takeover-driven companies. Of greater consequence, the success of Guinness’s campaign was later found to be based on a criminal share-support operation in which a £70m slush fund was used to compensate those who had bought Guinness shares during the campaign. That revelation led to the trial and conviction of the ‘Guinness Four’, who included Ernest Saunders, the chief executive of Guinness during the takeover, who was later sacked and jailed for false accounting and theft.
Yet even if Hanson/Imperial and Guinness/Distillers represented takeovers at their most exciting, they were hardly new to the UK corporate scene. In the years after the Second World War, when shares prices were cheap and asset values depressed, several notable fortunes were built by entrepreneurs who saw the chance to get rich by acquiring companies whose shares were listed on the London Stock Exchange. None did this more effectively than Charles Clore and Jack Cotton, in response to whose hyperactivities the term ‘takeover’ was coined. The activity of these two reached its zenith in 1960 when they merged their property companies to form what was then the world’s biggest property company. As it happened, that deal was disastrous and the union fell apart after Cotton’s death.
Arguably, however, Clore and Cotton were really only imitating what Louis Wolfson had been doing on the other side of the Atlantic since the late 1940s. Having made a small fortune by supplying building materials, Wolfson started out with the 1949 acquisition of Capital Transit Company, a bus operator, for $2m, which he later sold for $13.5m. A string of hostile takeover bids followed, the best-known of which was the unsuccessful attempt in 1954 to buy Montgomery Ward, a totemic US retailer.
Wolfson introduced the technique of the ‘hostile tender offer’ to the predators’ armoury, whereby they would bid to buy a chunk of a target company’s shares and use that to exert influence over the company’s directors. It has subsequently been perfected by the likes of Carl Icahn and Nelson Peltz, who are such familiar figures on the US – and the UK – corporate scene that their role is interpreted as agents for improving the long-term performance of target companies rather than simply being seen as greedy. Similarly, Wolfson, who served time in prison for offences of perjury and obstructing justice, has been rehabilitated as a contributor to human welfare.
It might be a bit rich to sketch the likes of Guinness’s Ernest Saunders or Hanson’s James Hanson into that role. That said, nowadays their activities seem almost anachronistically quaint. Today takeovers are much more restrained affairs. The hostile bid is a comparative rarity. Acquiring companies first seek to secure the approval of a target company’s board before they bid. Without that, they are likely to walk away. It saves time, money and public opprobrium. Even Carl Icahn – now 79 and still annoying Apple Corporation – is becoming a caricature of himself. Still, you can bet that the time for hostile takeovers will return. Or, at least, that’s a fair topic for rumination as you wistfully swirl a shot of Johnnie Walker around in its tumbler.
