Merchant banks and corporate acquisitions

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Citation: Chia, K.G. (1982). Merchant banks and corporate acquisitions. (Unpublished Doctoral thesis, City University London)

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i1ERC _{tI AN} 'i ANKSA 11 D

CoPPORATF, _ACQUISIT10 14 S

(Vol.

₂₎

A Survey

_of

the

Organisation,

Role,

Ani? Approaches

to

Contested

Bids

_of

_the

_Najor

_{UK i4erchant}

Banks

ROBERT C1I].

_A K. G.

PhD Th. e"i. s

THE CITY UNIVERSITY

BUSINESS

SCHOOL

LONDCN

This

Thesis

is

Submitted

for

the

Degree

_of

Doctor

_{of Philosophy}

in

_Management

_Studies

ErU.

_{ýU: "iý TiyC)}

i_Z_

CONTENTS

Title

kote _{on Restriction}

Contents

List _of Tables

Abbreviations

PAR

_{IT 0NE-}

_{SUMMARY OF SELECTIVE}

DATA OF THE 30 UK MERCHANT BANKS SURVEYED

1.0

The Comparative

History,

Evolution

_{and Current}

Developments

_{of the 30 Major}

UK Merchant

Banks

PARTTW0-

_{TRANSCRIPTS OF INTERVIEWS}

I

III

1

2.0 _{MERCHANT BANKERS/STOCKBROKERS 12}

2.1

_Manager,

_Baring

_Brothers

₁₃

2.2

_Dead,

_Corporate

_Finance

Generale)

20

2.3

_{Vice-President,}

_Corporate

_Finance

Sach Europe) 24-

2.4

_Manager,

_{Bank of America}

_{International}

_Limited

₃₂

2.5 _'4? arther (Ccý3ehPve) ₃₆

2.6 _{Merchant Banking Analyst'(James Capel) 411}

3.0

_{OTHER PROFESSIONALS}

47

3.1 _{Takeover Specialist} (Sir _{Charles Ball)} 48

3.2 _{Corporate Lawyer (Clifford-Turner)} 57

3.3 _{Divisicual Director (;; metro Cc nsulta its Group, ) 2}

3. 'r _{Editor, Journal of Business Law (xrof. Cli ve}

EJ Scbmitthoff)

11. _{OSNT. R_.: ý. E ULA TODY/DDnVl;}

'CQ Tn*. T PkT Dl1ýTL _týý r)7 " _{Lß.. 11 yj} 1f y ELOA _{L: +JSI} JJ%tt. J {JV 1L" 1

4.1 _{Director-General}

v.. _{.. J}

fi( Ar. cceoting LI o'.. _-0s

Commit1ovJi >72 . ý. ..

vv... _>-.. I. vv

4.2 _{Deputy Director-General} (The _{Take-over Panwil', 0:}

1

II

Page

4.4

Head, Quotations

Department

(The Stock

83

Exchange)

5. -0

APPENDICES

88-95

-, j

/ C

r

::,

._

Table

No.

5.1

5.2

5.3

5{

5.5

5.6

._ ill

List _{of ; j-auies}

(voi. 2)

Ti 1; e i'äß, ä

Comparative Financial Performance _of the ₈₉

30 UK Merchant Banks

Comparative

Financial

Highlight

_{s of the}

₉₀

17 Accepting Houses Committee Members.

Comparative

Analysis

_{of the Ownership}

₉₁

Structure _of the 30 UK Merchant Rants

Comparative

Analysis

_{of the}

Worldwide

₉₃

Multinational Merchant Banking Opcrrations

of the 30 UK Merchant Banks

Comparative _{Analysis of} the _Diverse Banking/ _%

Financial _{Activities Offered} by the 30

Major UK Merchant Banks

Comparative Balance Sheet Highlights _{of 95}

the

30 UK Merchant

Banks

they.

Parent

- IV -

List _{of Abbreviations}

(vol.

2)

\

AHC

_{= Accepting}

Houses Committee

BNOC _{= British} National. Oil Corporation

CGT _{= Capital} Gains Tax

CSI _{= Council} for the Securities Industry

DoT _{= Department of} Trade

D-G _{= Director-General}

DOF _{= Discounted} Cash Flow

GM- _{= Grand} Metropolitan

HoF _{= House of Fraser}

HKSB _{= Hong Kong & Shanghai} Bank

ICFC _{= Inaustrial.} & Commercial-Finance Corporation

IHA Issuing Houses _Association

IBS

_ Investment Banking Service

RBS _{= Royal Bank of Scotland}

SOB

= Standard Cigar bereu Bank

SEC _{= Securities} & Exchange Commission

SCMB _{= Standard} & Chartered _Merchant Bank

TP _{= Takeover Panel}

- IF

PART I: SUMMARY OF SELECTIVE-DATA OF THE

30 U. K. MERCHANT BANKS SURVEYED

-1-

N

C0'iPARATIVE HISTORY, EVOI, UTI01`: AD CURRENT ýJ}? ýý i; OPPI1Eý: rý' OF

THE 30 LEADING U. K. T. _{iERCHANT BANKS}

1) ANSBACHER H.

Established in 1894 as a firm _{of stockbrokers and in}

1949 it transformed

_its stocking business to merchant bank-

ing. Today Henry-Ansbacher _{operates as a wholly owned subsi-}

diary _{of Henry} Ansbacher Holdings Ltd. (a new holding _company

restructured from Fraser Ansbacheýr Holdings Ltd. in 1979)"

2) ARBUTHNOT LATHAM

It has its _origin in the firm _{of Arbuthnot} & Latham

(1833) _{and is closely identified with the sale of Indian}

merchandise in London, the Sri Lankan tea trade as well as

sisal and coffee production in East Africa. From the mid-

1960's, the bank diversified from its _commodity based _opera-

tion into _{new financial services of modern banking like}

domestic lending, banking, _{corporate planning, portfolio}

management, corporate finance, etc. In October 198`1, it merg-

ed with Dow Scandia. The shareholders in Dorr Scandia are

Dow Banking Corporation _{of Switzerland.} (52 o)

, Sundsvallsban-

kenof. Svieden (16%), _{Bank of Helsinki} (16 _{0) and Forretnings-}

banken _{of Norway} (16%). These banks have _{combined assets of.}

approximately E. 214.1"92 billion.

3) BARCLAYS MERCHANT BANK LTD.

It _{started off as a wholesale money market-operator}

in _{1967 and then shifted to merchant banking. in 1976, it}

changed its name from London & International to Barclays

Merchant _{Bank and currently operates as a merchant banking}

subsidiary _{of Barclays} Bank, _{one of} the leading _clearers in

the U. K. BMB attained its _{distinction under the chairmanship}

of Sir Charles Ball, the takeover _{specialist who resigned aft-}

er policy differences _with the _{present company. The two}

principal activities _{of BI'IB are banking} (provision _of term

loans _{and acceptance credits) and corporate financial advi-}

sory _servic-es

4) BARING BROTHERS & COMPANY LTD.

Founded _{by Francis and John Baring in 1763, it holds}

the distinction _{as the oldest established house in the}

'City'. _{From merchanting in wool, the firm's}

reputation in

banking, _{soon became established}

world . de; ;t _assisted in

the _{Louisa-na purchase of 1804,}

and subs-pq_uen tly became

bankers _{for the U. S. Government in 1818, = Furthermore, it}

acted _{as "Iondon} financial _agents for _{the imperial. Russ! an}

Government _{in 1846, issue of bonds for the Chinese}

-J-

nese imperial Government andv,:, instrumental for the econc-

nomic expansion of Argentina and Uruguay in the second : iai

of the nineteenth century. through the bank's experience in

i nternat-i onäl trading, financial activities and contacts,

Tbig forned the basis of its contemporary multinational mer-

. chant banking role. Today, Barings is

involved in _all facets

of international banking, finance and investment management.

5) BRA SHIPLEY

Formed in 1810 in Liverpool _{as William. Brown & Company}

it _changed its _{name to Brown} Shipley & Co. in 1839. In 1863,

it _{moved into} London _{and soon after,} its Liverpool business

ceased and by the middle of the nineteenth century, it had

become _{established as an international} bank. In 1918 because

of corporate divestment, today its American operations flour-

ish _{separately i. e. Brown Brothers} Harriman _{& Co.} (New York)

and Alexander Brown_& Co. (Baltimore). In the _contemporary

banking _environment, Brown Shipley _still finances trade but

has gradually gone into sophisticated _{and specialised} finan-

ce catering to the needs of industry, commerce, government

and operates as a subsidiary of Brown Shipley Holdings (con-

stituted in 1960). _1-

6) CHARTERHOUSE JAPHET LTD.

mraci rig its _{ongi n to - J. S., Japhet} in _{1880 j. was}

acquired by the business _{conglomerate,} Charterhouse Group

in _{1954. Today, Charterhouse is an established investment}

and banking _{group with shareholders'} funds _{of £70m and capi-}

tal _{employed of £105m(1979) and its other subsidiaries are}

engaged in development _{capital, manufacturing,} insurance

broking, _{distribution and North Sea oil}

production. In July

1980, it _{acquired. Keyser Ullman, another member of the AHC.}

7) COUNTY BANK

County _{Bank dates back to 1862}

- in 1934 it assumed

its _{present name} (Manchester. _{& County Bank}

as previously

constituted). Owing to the banking _{merger of National}

Provincial, ýýestminister _{& District Barks in 1970, it then}

became. _{the merchant banking arm of the National Westminis-}

ter _{Barik, one of the largest commercial banks in the}

world

with _{assets exceeding} ä20 billion. _It is _{a member of the}

Issuing _{Houses Association and its}

current _emphasis is _on

providing _corporate finance _{services emanating from its}

parent barme'n domes _{c; and . l'Liter. nation branches 8eß ; ring a}

wide _{spectrum of companj. es, listed and'--unlisted, local}

and

Woo. ddwide in _{addition to" its lending}

and investment _manage-

Y

8) DAT NDA i DAY

Incorporated in 1928, Dawnday Day was subsequently

acquired by the Indus trial Finance & _{_Investment} Corporation.

In December 1979, Rothschild Investment Trust through its -,

wholly owned subsidiary, Hume Holdings successfully effected

a takeover bid for the bank and subsequently, the Dawnday

Day Group (the immediate holding _company) has been _restruc-

tured into three-main _operating divisions, _namely, life in-

surance (Target Life) unit trust and financial services

(Target _{Managers and Dawnday Day & Co. Ltd. ) and industrial}

interests (Dawnday Day Holdings).

g) GRAY DA4v'ES

Its _origin dates back _{to 1865 when it} began _{as a part-}

nership trading with the Far East. It became _{a public com-}

pany in 1958 and received recognised status _{as a merchant}

bank in 1971 from the Bank _{of England. As a result of} the

implementation _{of the Banking} Act in _{1980, the Bank of Eng-}

land subsequently _conferred full banking _{status and as a re-}

sult, it _changed its _{name from} Gray Dawes & Co. Ltd. to

Gray Dawes Bank _{and operates as a fully owned subsidiary}

merchant bank _of the Far Eastern trading _{cgngloinerate,} the

Inchape Group. Its _{activities centre around corporate} finan-

ce, export financial services, _commercial banking and port--

folio _management.

f

10) GIBBS ANTONY

In 1808, Antony Gibbs in _{partnership with his sons}

(George _{and William) founded the bank in London. In the}

early stages of its banking development,. Antony Gibbs is

closely associated _with trading _with Spain, Rortugal _and

Latin _American (especially _{Chile and Peru). By 1881, it}

had extended its _{business to Melbourne and in 1948, the}

companý. ttransf'med from _{a partnership} to a private limited

company _{and became public} in 1972. In 1973 the _{HKSB manaed}

to acquire _{a 20% equity} holding in the _{group and in June,:} '

1980, it _{successfully took over the whole company in order}

to develop its _{merchant banking business here in Europe.}

Antony _{Gibbs has its own offices in South America and Aus-}

tralia _{and through its association with the HKSB and its}

subsidiaries, _especially the British _{Bank of the Middle}

East, _{it has access to a worldwide network of merchant}

banking _{contacts and expertise with special focus on the}

n

ý. .ý

11) GRINDLAY BRANDTS

It is _{a founder member of} the ARC during the _early

cart of this century and _-is ýoriiierl y know as tizrt Br_ andt

rounded _{in 1805, by the brother of Wilhelm Brandt who was}

involved _with import/export business with Russia. In 1972,

Grindlays Bank (a subsidiary _{of Grindlay} Holdings) took

over-the bank from the Brandt family after buying out the

family holding in _{one of London's oldest merchant} banking

houses. Its business _{was adversely. affected} by the `fringe'

financial _{crisis of} the _early 1970's _{and it} had to be

subsequently expelled from the AHC. Today, the merchant

bank has been _{restructured .} It is _seeking to remould it-

self as an international merchant bank by exploiting and

strengthening its international services in India and the

Far East.

s2ý GUINNESS MAHON

The genesis of this Irish-merchant bank is attributa-

ble to the _partnership between R. R. Guiness _{and J. R. Mahon}

in _{1.836 in} Dublin. In 1973, the holding _{company of} the bank,

Guiumess Mahon Holdings _{merged with} Lewis & Peat Ltd. to

form the _present day Guihress Peat Group (GPG)

. GPG, as it

is _constituted in its _present day form is _{a very} diversified

multinational engaging in merchanting, commodity, chem: ical. s,

financial _services, investments _{and property services, in-}

vestments anc property, international projects, insurance

broking _{and international merchant} banking.

13) GRESHAiM TRUST

Gresham Trust is the _merchant banking _{subsidiary of}

Gresham _{Investment Trust, a publicly quoted company estab-}

lished in 1959. It is _small in _{comparison to the other ac-}

cepting houses but its merchant banking focuses around ý: en-

ture _{capital and over the past 15 years it has invested} in

around _{90 companies. Added to the aforementioned, it also}

offers _corporate finance _services, investment _management,

leasing _{and property development finance.}

14) HAJV1BROS _{BANK LTD.}

The banking business _{of Hambros has its roots in}

eighteen _century Ooponhagen4 The London _merchant oan

was established by Carl Joachim Ham'oro. It became _{a public}

company in 1920 _{when C. J. Hambro ý SGw merged the}

Bank _{of Northern Commerce. Ixe 1970,}

under. _{a private} Par] ;. a-

nmeritary Act, Hambros _{Bank Ltd. becAm e 'the} main _{rnerchýý-j-t}

banking _arm

of Hambros i, td; _{as a result of corpora}

.e ý--

organisatiun

-5-

non-ban ý. _ng

quoted company involved In both banking and

actisVi ti es like merchant banking (Hambr. os) _, insurance (Ha. m-

bro life), property (Berkley Hambro Property), advertising

iVolleVV Dickensee Pearce/ _acid diamonds (I.

Henning & Co. _).

Over the _past few years, Hambros has become vulnerable to

publicity because of. its involvement with the Reksten ship-

ping companies.

15) HILL SAMUEL & CO. LTD.

In 1830, M. Sarnue1 & Co. _{was established} to _exploit

the East-West trade between England _and the Far East _by

Marcus Samuel _{who also} became the first _{chairman of} Shell

Transport Co. in 1897. In 1907, `STT'merged _with Dutch dil

interests to become _{a new company,} the Royal Dutch-Shell

which today, is one of the world's leading oil majors. In

1920, M. Samuel & Co. became _{a limited company and} through

rapid growth strategy of _early twentieth century, it spawned

off another company, Philip Hill & Partners _and acauirec; } g--

ginson & Co. In 10,59, it merged with Earlangers Ltd.;

another merchant bank. The contemporary Hill Samuel Co. Ltd.

is derived from _{a merger} between Marcus Samuel _{& Co. and}

Phil--D Hill, Higginson, Earlangers Ltd. in _{1965. As one of}

U. K. 's leading _{multinational merchant} banks, Hill Samuel

operates worldwide in. America, Asia-Pacific _region, the

Middle-East, Africa _and Europe in _{commercial banking,} in--

ves bient banking _{; corporate} finance, _{ship-ping, portf of _o}

management, _{p±'o j ect management and other related} financial

services. There i _{strong market speculation} tha t in the

1980's, _Hill Samuel _{would merge with a major American invest-}

ment-bank, _possibly Merrill Lynch. In 1980, Philip Hill In-

vestmaen t Trust _{whose. chairman} is

. Lord Keith, disposed of its

16.0 ýj _shareholding in the _company.

16) _ICFC

Founded in _{1945, ICFC is a fully owned subsidiary of}

finance _{for Industry,}

a holding company which itself _came

into _{being as a result of the merger between Finance Corpora-}

tion _{for Industry and Industrial & Commercial Finance Corpo-}

ration both established ixe . 1945- Today, ICF O as part df FFI

maintains its leading _position in _{the U. K. market as an in-}

vestor in _{small and medium sized companies. Mergers, take-}

overs, _rights issues _{and general} financial _{advisory activi-}

_. 6

17) KLEIN ORT BENSON

Its beginning dates back to the Cuban sugar trade

business founded by . games Drake ;n 1792. He was i a-ter joi?

ed by Alexander Kleinwort from Schleswig-. Holstein who was

responsible for developing the banking business. The Klein-

worts then acquired the business interests of the Drakes.

In 1961, Kleinworts _merged with Robert Benson, Lonsdale

(this _company is. in fact _{a result of an earlier merger} be-

tween Robert, Benson, & Co. _{and Lonsdale} Investment Trust in

1947) to form KleinwortL Benson, Lonsdale Ltd. Kleinwort

Benson, the _{main merchant} banking vehicle of the group then

acquired Sharp Pixleyiin 1966. In the U. K. merchant banking

scene, Kleinwort Benson as presently constituted, is the

largest _merchant bank _{and operates worldwide offering} the

whole range of modern multinational merchant banking. ser-

vices. Over the last decade it has expanded rapidly into

the Asia-Pacific _region.

18) KEYSER ULLMANN

Keyser Ullmann Ltd. has _strong linkage _{with another}

established traditional house i. e. Samuel Montagu. In fact,

the _{partners of Samuel} Montagu founded A. 'Keyser & Co in

1868. In 1908, it became _{an independent merchant} bank _acti-

vely involved in money markets in Paris, Oslo and New York.

In 1962, it _{merged with} Ullmann _{and Co, 'another 'another} City _mer-

chant bank tot become Keyser Ullmann. Its parent company,

Keyser Ullmann Holdings Ltd.

, obtained a listing in the same

year. In 1980, it merged with another member of the A_HC,

Charterhouse Japhet.

19) LAZARDS

Lazards is _related by historical _{and barking affilia-}

tion _{with Lazard Freres et Cie} (Paris) _{and Lazard Freres &}

Co. _{(New York) although there is no shareholding links. These}

links _{are traceable to 1848 when three brothers, Alexandre,}

Simon _{and Lazare move] from France to New Orleans and later}

to _{San Franciscos their business branched into New York,}

Paris _{and London. The English merchant banking business}

flourished _{when Lord Kindersley} (later _{to become a director}

of the Bank of England) _{,a stockbroker} joined the _company

in _{1905. In 1920, it became a private limited company at}

which time, S. Pearson & Son, (today, _{a diversified} indus-

trial _{conglomerate) acquired a major interest and currently,}

it iiI. _{the main merchant banking arm of the group (listed}

in _{1969) with its merchant banking, services centering}

around _{co, -m-ner cial} banking, _corporate

, inanre and portfolio

management. In May 1981, Lazards diverst. f _{ji_n d Otto commodities}

by acquiring Gardner _{Lochmann, a Lc. ndon' coITmodA i ty banking}

n

20) LLOYDS MERCHANT. B ÄI

Lloyds _merchant bank dates back to _{1765 when Taylors}

and Lloyds established a partnership in Birmingham. A cen _ry

later, the _{partnership merged with} Moilliet & Sons to form

Lloyds Banking Company Ltd (a joint _{stock company) and by}

1884, it had, established itself _at Lombard Street in the

City. Today, _apart from _{a 25% stake. in National & Grindlays,}

Lloyds _also has _{an investment} in _BOLSA (Bank _{of London}

South America). _{To compete with the other clearers in the}

provision of comprehensive _merchant banking _services, in

August, 1978, Lloyds _{Bank recruits( Mr. David Horne (ex- War-}

burg) _{and Mr.} David Anslow _{to develop its embryonic merchant}

banking _activity located _{with--tthe international division of}

the banking _{group. At the beginning of 1981, Lloyds Inter--}

national (the Australian merchant banking arm) took. over

David Block _{& Associates, a move which will make it} the

leading _merchant bank in _Australia.

21) _{MORGAN GRENFELL c& 00. LTD}

The origin of this famous _merchant bank dates back to

1838 when George Peabody _{of Massachusetts openalhis office}

at 31 Moorgate in London. By 1854, he had built _{up a mer-}

chanting business _{and incorporated a new partner, Julius}

Spencer _{Morgan, a fellow New Englander, who ws responsible}

for the development _{of three worldwide banks, viz, Morgan}

Grenfell, _{Morgan Guaranty and Morgan- Stanley. On Peabody'}

s

departure _{fron the IT. K. (he re Ured in 1864}

and returned to

the U. S. to continue his _{nhilantrophic work) the business}

then _{operated tunder the name of J. S. Morgan. In 1904, Ed-}

ward Charles Grenfell joined the bank _{and became senior part-}

ner _{and six years} later, in 1910, _{Morgan Grenfell & Co.}

replaced the _old business's _{name. J. S. Morgan died in 1890}

andalas succeeded by his _son, John Pierpont. _{From 1914 to}

1920, _{the bank achieved great success}

when all British

Government _{purchases, loans and financial deals}

were _chanel-

led _{through Morgan Grenfell & Co. (London)}

and J. P. Morgan

(New York). _{At this time, as a result of non-payment}

of debts

owing to the bank _{and other houses from Germany and all her}

allies, the AHC came into being _{and Morgan Grenfell is one}

of its founder _{members-. Furthermore, the Glass-Stegall Act,}

1933 resulted _{in more changes} in _{the Morgan houses. Normal}

relationship between _i

. P. Morgan & Co. ceased but the former

still _{retained one third of the equity of its London busi-}

ness. The expansion _{of the company's business in the}

mid-JO's

and 60's led to the incorporation-of _{Morgan Gxrenfell Hold-}

ings _{Ltd. in 1971. (Morgan Grenfell & Co. is}

still its _most

important _{subsidiary). In}

addition to its _more traditional

areas _{of operations,} in _{1970, the bank pursued an active}

policy _{of exparipion} into _{international markets in the Middle-}

East _{and Asia and in 1975,}

achieved. distinction _as

the _{first merchant, bank to}

receive the Queens Award to in-

dustry _for

export. In May 1081, Morgan'ýcuara. _{nty Trust Coýý-}

pany _which is _{the largest single}

sha. reh'Ider in the bank

decided _{to reduce its 33}

stake in the company _{by placing}

the _equity

with _selected British _{institutions. At the}

same

time, _{Morgan Grenfell}

established Morgan Grenfell _{Inc. in}

New York _{to expand its international}

-0-

ness to compete Sc1ir^rl rs .e) Court (Rothschild c-) _-nd

l'erhurrr Poriha. g Baker _": hr _are a11 "ýrorn nnnt in AJat"r YnrL_:

22) MANUFACTURERS HANOVER LTD

One of the newest merchant banks in London, `NHL"

started operation in January, 1969 and its principal share-

holder, Manufacturers Hanover Trust Company (through its Edge

Act _{subsidiary) owns 75% of} the _equity. In April. 1979, it

received permission from the Federal Reserve Board to acquire

the 2555 interest _owned by Rothschilds, Riunione Adriatica di

Sicurta _{and the} Long Term Credit Bank _of Japan in _order to

facilitate the _{co-ordination of} its _merchant banking _activities

on a worldwide basis. in addition to its London operation,

"MHL" also operates a merchant banking subsidiary in Hong

Kong.

The bank deals

in Eurobond

issues,

_project

finance,

corporate

financial

advisory

services

and portfolio

management.

23) _{ROBERT FLEMING}

This _merchant bank _owes its foundation to Robert

Fleming _{of Dunrdee. After} his 'business tri _{: to} America, he

returned home to form the first ever Scotti sri 'ýme ri can

fnvestmont Trust for his _clients. With the _{rapid gro:: týh of}

this business, ho then _moved to _{London and} formed _{a partner-}

ship. He subsequently became the director of many Scottish

and English investment trust companies which at that time

Biere instrumental in the early part of this century in finan-

cing the _{growth of} the North American economy especiail J in

cattle, _{oil and railroads.} In 1932, the partnership trans--

formed into _Robert Fleming & Company. The traditional

activity of the bank i. e. investment trust managements remained

the _{core activity} for the next twenty _years but in the 1950x,

the bank _{established a number of unit} trusts _{and played an}

instrumental _{role in the establishment of Save & Prosper}

Group _which is _{now the} foremost _{UK unit} trust institution.

Due to historical _{reasons, America} is still the bank's _major

overseas operation. But since 1970, the company had diver-

sified

_along

with

other

leading

UK merchant

banks into

the

Far East _especially Japan, Hong Kcng _{and Singapore.} For

instance, _{Jardine Fleming formed} in 1970 in _{partnership i'i1-Llh}

Jardine

_i"Iatheson

is

today

_{one of the}

leading

British

_merchant,

banks _{in ý! e}

SFa East, To cater to the needs of its rani d

diversification _{programme, a new holding company,} Robert

Fleming Holdings Ltd has been _created to oversee the _salient

activities _of its two _main subsidiaries, _namely, Robert

nI Crain _{Cf. t. "ompany} lban'sinü and corporýate 11. i1an ej C+. i1+1. RoI e

Fleming _{Investment ; "iana ; elment Ltd} (i6,3estment bus_ne _s), In

1980,

its _{neý_Tes member since tie expuý sion of Grind! try +ý-'_ -sn}

G

2 4) REA BROTI ERS

Rea Brothers, _{one of} the _{smallest accepting houses,}

owed its creati on to Re _, ['_larren & Iý: c 7 ernnan L" td in 1919,

at the end of the First World War. In 1947, this company

subsequently changed its name to Rea Brothers Ltd _and

three _years later it _{acquired another bank, Walter H. Salo-}

mon & Co. and consequently became _{a publicly} listed _merchant

bank in 1960. The bank's _{main operations are commercial}

banking, _corporate finance, _{portfolio management, insurance}

broking _{supplemented by. a travel} business.

25) N. M. ROTHSCHILDS & 'SONS LTD (f!

_ ti f_

"NMR", _{the famous English merchant bank owes its exist-}

ence to I-layer Amschel Rothschild, _{a German} Jew who

-first

started _{a money} lending business in Frankfurt in the _middle

of the _{eighteenth century.} One of the five _{sons of Mayer,}

Nathan Rothschild _{migrated to England in 1878 and in 1810,}

established N. M. RQthschild & Son, his _{own bank} bearing the

same name that is internationally known today (at _{the same}

time, the three _{brothers were developing the family's busi-}

ness in Germany _{while another} built _{up an equally} famous

merchant bank in Paris). The bank's _evolution is _{very well}

documented _{and during the} 43 years _{Lioneltheaded ITINIR (he}

succeeded Nathan in 1,936); It is _said that Rcthsch lds _{ra. is--}

ed over £1 billion in foreign loans for Brazil, Belgium,

Egypt, _{France, Holland, Greece, Portugal, Prussia, Turkey,}

USA, Russia, _etc. Lionel's _{son, -Nathaniel became the first}

Lord Rothschild': _{In 1961, Mr Evelyn de Rothschild inherited}

the family _{business on the death of his father, the third}

Lord _Rothschild. In _{order to reassert MIR back into the}

forefront _{of British merchant business, he enlisted his}

cousin's help. His _cousin, Jacob, _{was instrumental} in _creat-

ing _{a new corporate finance department as well}

as a new

public _company, Rothschild Investment Trust (RIT). _in Sep-

tember _{1980, o; Ung to family differences between the cou-}

sins, Jacob (chairman _of RIT) _resigned from the _{Board of}

Rothschilds _{Continuation, the holding company of the merchant}

bank. _{Moreover, he had to change the}

name of RIT to RIT Ltd

but _{was permitted to create a new company, J. Rothschild-in-}

ternational _{Investments to look after his international busi-}

nesses. This decisive _{corporate restructuring allowed Jacob}

to use the family _{name in a part of his} business, but _not

in _{the title of}

. the main holding company. On December 1980,

Sun Alliance _{Insurance. Group acquired Jacob's 11.4%}

stake

in Rothschild

Continuation (aýo; ar rrom _{members of} the Roths-

child family _{and their companies,} the _{only shareholder} in

Rothschild _{Continuation until this share}

purchase

Eagle Star _{which brought a 7.5c holding in}

early

1980).

Jacob's _{departure in Marc. - l 9Q1 E__^ tyt}

Y-; _ " -- - -I - _" I-

e1 .Lv, LIY GýV11 l/1. (Gll ýe

C.

1,1; _{1 L. YI,} I k/11a-- .

Richardson _{of Cazenove} (the

_leading

er) in to

head _{and expand the}

corpora t 1i11ä ce itepar V1

en t.

- 10 -

26) SINGER FRIEDLA! 1DER

Incorporated in _{1907 as singer & Co. the bank changed}

its _{name to its present title in 1920 and then operated as}

a private company until 1957 when it became _{a quoted mer-}

chant bank. In 1971 Singer & Friedlander _{was taken over} by

C. T. Bowring _{and in} 1980, the _{ownersip of the bank once}

again changed hands when its _{parent company was acquired} by

the large American insurance _{company, Marsh & McLennan. With}

the _{approval of both} the _{Bank of England and Lloyds, control}

of the merchant bank _{was then} transferred to European _Ferries

(in _{order for it to retain its AHC status)}

who currently is

the _{main shareholder with 92.5% of the banking group.}

27) SAMUEL MONTAGU

Of the _{five subsidiary merchant banks of the}

clearers

in the _{UK, Samuel Montagu is the most active in the inter-}

national _market. Incorporated in 1853 _{as Samuel and Montagu,}

it _{operated as a private limited company}

until _acquired by

iiidland _Bank (1973) _{and then reconstituted as Samuel Montagu.}

& Co Ltd (formed _{from the amalgamation of two other busines-}

ses _{as well as, viz,} Drayton Corporation _{Ltd and Midland-Bank}

Finance _{CorporationLLtd). As a member of the A_HC and a %rhol-}

ly _{owned subsidiary of Midland Bank, Samuel Montagu's}

mer-

chant banking business _operates through _{five main divisional}

structures,

namely, UK Banking Division, Corporate _Finance

Division, _{investment Division (Drayton Montagu Portfolio}

Management _{Ltd), International Banking & Finance Division}

and International Dealing Division. _{With the departure of Mr}

P. Shelbourne _{for BNOC, Midland Bank then brought, 'Nr Staffan}

Gadd _{to assume the chairmanship and also to strengthen}

and

expand its international _corporate finance _{business in Asia}

and New York.

28) _{STANDARD CHARTERED MERCHANT BANK ("SCI-1B"}

SCMB originated _{as Standard} Bank Finance _{& Development}

Corporation _{Ltd to provide development finance in Africa. In}

1973, _{as a result of corporate re-organisation, it}

changed

its _{name to Tozer Standard & Chartered}

Ltd - (joint mer: chasi t

banking _{venture between Tozer Kemsley Millbourn & the Stan-}

dard _{Chartered Banking Group). In January 1977, Standar. A}

Chartered _{Bank Ltd successfully acquired the 49% equity hold-}

70

ing _{of its joint partner and then}

recharged the bank's _name

to Standard _{Chartered Merchant Bank. Affiliation}

with this

major _overseas banking _{group had allowed SCMB to fully ex-}

ploit the Group's 1,500 _{offices worldwide. Over the last}

decade, _{the bank had actively}

expanded in _{o "on-} K&ng _.

5

: alaysia _{and Singapore as well as ATriýa in the development}

of _project fing-4 _{ce and o. o internatl}

- 11

29) SCHRODER VIAGC _tJ. H.

Like Kleinworts, Hill Samuels _and Rothschilds, Schro-

del. _{Y, a g, an ARC member} is _another lei di i : interna _U ional

UK merchant bank. Founded in 1804 as J. Henry Schroder, it

changed its name to Schroder successors Ltd in 1956. Two

years later, the bank was acquired by J. Henry Schroder &

Co. Iýtd. _and in 1957, _{ownership passed} into _{the control of}

the _current holding _company, Schroders Ltd. The _present bank

came into being in 1962 through the amalgamation of J.

Henry Schroder & Co. Ltd _and Helbert Wagg _{& Co Ltd. As an}

international _{and consultant merchant bank, J. Henry Schro-}

der Wagg _{& Co.} Ltd _operates through 6 main _operational

divisions, _viz, the banking division, the investment _divi-

sion, the _company. finance division (corporate finance),

project division, reserve _asset management group and the

business _{analysis/strategy group.}

30) S. G. WARBURG & CO LTD

Or-i ginally _-founded by Sir

_S i pnund G. Warburg in

1934 _{and operating under the former name of New Trading Co}

Ltd, in _{terms of historical development, S. G. Warburg} (name

derived in ₁₉₃₄₎ is _{comparatively young compared to most of}

the traditional _{houses. Nevertheless, over the past six de-}

cades it has developed _{an international reputation, chiefly}

enhanced by its French _and American _{affiliations.} On the

French _{side, Warburg is linked with th the owor. ful Part b%as}

Group through' _{a new company, Paribas-Warburg S. A. in which}

Warburg- _{has a 0% stake. In. exchange, Paribas owns 25% of}

the _{equity of S. G. Warburg & Co.. Ltd. In America, Warburgs}

allies itself _{with an established} American investment bank-

ing _{house, A. G. Becker & Co. Inc. It operates its merchant}

banking business through Becker Warburg _{Paribas Group Inc.}

These _{two associated} investment _{banking and securities firms}

in _{America have Progressed well especially in the develop-,}

ment _{of WPB' s corporate} finance business. Warburg' _{s business}

is _{currently affected by two major changes in 1981, firstly,}

the _{natianalisation of French banks by the Mitterand Govern-}

ment _{and secondly,} the divestiture _{of its metal and refining}

subsidiary, Brandeis Goldschimdt. & Co Ltd. _{As part of} its

international _{diversification, it has teamed up with Aetna}

Life _{& Casualty Company which is one of the largest non-}

mutual insurance _companies in the US to provide investment.

management for" Aetna _which has assets _{of S36 billion and}

manages _{a pension} fund _{portfolio of over} S3 billion. Mer-

cury Securities _{operates as a holding company} (it has _exist-

ed since 1953 when Warburgs _acquired Central Wagon and con-

verted it to Mercury Securities).

C0

ýa p -1 e

-1 1

from:

3 _ii

Annual

(merchant banks)

b) inýnciy 1c)

YInvestorýi,

uc, `-_ wn

-- a

- 12

PART II: TRANSCRIPTS _{OF INTERVIEWS}

(MERCHANT Bt NKERS AND STOCKBROKERS).

- '{ ?-

v . NICOI, L

11A1

BARING BROTHERS

TRANSCRIPT

Q1: Is _{a pre-bid stake critical to the outcome of a contest-}

ed takeover situation?

A: Well, _{every circumstance} is _{different and the reason}

that it is different is that _{you perceive at the start}

whether the takeover is going to be hostile _{or unfriend-}

ly. There _{are many instances where a takeover won't. hap--}

pen if the target company is not in. agreement _{and in}

those _{circumstances} there is _{no point} in _{building up a}

stake for _{your client as it} is _{expensive and a waste of}

money. If on the other hand, your intentions _{are agres-}

sive, it _{may be that you would} take _{a stake.} But _of

course, if you develop a small stake that doesn't _neces-

sarily help _{and you are going} to have the _{effect of put-}

ting _{up the price against you. It depends. Sometimes,}

it is _{a very thin market and in order to get a decent}

stake _{you have} to disclose it _{at 5% anyway.} So, _even

to get 5% in some companies they _{may put up the market}

price against you which means you have to pay more in,

the _{end perhaps. In this business, you have to realise}

that _{each circumstance} is _{examined on its merits and}

we try to make a strategy _{which seems right} for that

case.

What about the _{structure of the share holding?}

As It _{can do especially} in _{small companies where you have}

large _{or family holdings, you know there are a lot of}

institutions. _{The bigger the company, the wider the}

shares, the _more the _{number of institutions} there _are.

It is _{usually easier to build a bigger stake where there}

are a number of bigger institutions because there is

a much bigger market _under those _{circumstances.}

Q1 What are the main parameters-that _{you normally explore}

with your _clients regarding _{acquisition planning?}

A: That is'a _{very difficult question because you know it}

depends _{on the circumstances. if it is a client we know}

very well, there _{may be a lot of discussions} before _we

get to the stage _of deciding _whether the _acquisition

is _{right or whether the}

particular _acqu i ý: z on

_JS

right. In _{some cases, we are asked} to look for _companies

but in _{other circumstances the client actually say, "We}

want to burr company X and how should _{I go about} it? "

You

at ý...

cýt_ o.. w, _{_ope.,}

, ý; pLicnced au Uhis

arid therefore, it is _{very much mor, e g question and we}

Lmno, v

. heir: very well and. therefore, ti .e

discuss

oJn is

not _{exactly a start and therefore,} i- is _{almost continu-}

ing _{and there are other circumstances when the}

client

comes in and say, "I want to buy a company. Can you

-- 14 .-

unless you can narrow the saof companies he ., rants

to _{buy and} it is _very difficult -f _{somebody wants} to

do a takeover but he doesn't know _{what he wants} to buy.

Q: Having _{assumed you have agreed} to _{a mandate} for takeover,

how do you go about structuring the takeover assignment?

A: Well, _{one would obviously} look-at the _{circumstances of}

that _{particular company; -where situated, what was known}

about it? Is it a public or private company? How many

shareholders are there? You try to look at the share

register and you try to find out as much information

as possible about the company. You do a lot of work and

then _{you evolve} the _strategy.

Q: How do you react to _{a hostile offer?}

A: Again, it depends to'some _{extent whether you have} had

a lot of discussion about that possibility before,

whether it is a new client or long standing client or

Whether the bid is _{expected or unexpected;} Then basical-

ly, _{you look at your client;} its _{position, why is} it

attractive? The price being paid. What defences you

have _got? You have _{got a profits} forecast _{you can make}

in n-a coming year which will make the company more attrac-

tive _{but obviously you can't put out a forecast which}

is _{not realistic. One has to look at the company and}

assess whether the shareholders knew about the follo. _%-

i

-that L' 1LtL`L, "

ng _year sp _Iah Lyon _li capi _{tula lre} qui _lie so _easily

c 1

You have to _{look at the Properties of} the _{company and}

other _assets to _{see whether} they _{are properly} valued.

You have to look _at the _shareholders to try to _convince

them that the _{company might} be better if they _stay inde-

pendent. You have to examine whether in your view the

attempted takeover makes sense _{or indeed perhaps} it is

a good thing. The view pf the management can possibly

be very important because _{one does not only advise} the

directors _{but one tries-to look at their position,} their

arguments, and again, we have to make up our minds

whether the offer is a fair _{one or you are} going to re-

fuse it _{and then you are going to try and get more money}

because the idea is _{a good one or you are going to fight}

off completely. If it is more money, then it-is a dif-

ferent _{strategy and is} it is independence, _{you may have}

. to see what defences you have got including public re-

lations; _{shareholders relations,} future _{management...}

Q: How would you then describe defensive _strategies?

A: I mean, obviously, there _{are the basics. What the share-}

holders _{look for} in _{the company. They look for the money}

th3y _{pu . in so that}

is prof) vý _:

u'Zd üv.. -i-r. and P_ ₁

ýý. _{; _a} ýý aýý I dam Lnds

all Those _are looked _at. Yes, _{you ärp} if _{you like,} fight-

irg _{a battle. if y are doin an aggressive ta; toz er.}

or a defended _{one, you have} to use what weapon seems

appropriate _{Co that case.} There _{are obviously, a number}