The Rise and Fall of the House of Fitzwilton

The Fitzwilton experiment contributed nothing to the Irish economy but earned for its three promoters, Tony O'Reilly, Vincent Ferguson and Nicholas Leonard, £1. 4 million in capital gains alone in return for an initial investment of a mere £75,000.
By JAMES PRUFROCK

IT WAS IN the silence of a rented room among the dark woods of Merrion that the dream was crystalised-a dream of creationnnew life from old. The "doctors" bent to their task amid clicking of calculators, the scrape of slide rules, and the rubbing of hands. They pored over charts and bluee-prints of corporate anatomy, stock exchange lists and accounts. They did their calculations.

The ingredients could be obtained.

The parts could be brought togetherrassets from here, earnings from there. All that was needed was to generate the essential life force. It would requ Ire money - not very much; paper-a great deal; and, most important of all, the harnessing of that intangible greed for riches born of the belief that wealth can be created from nothing.

The end result would be 'greater than the parts. New life would be created. The dream was born. That dream was to become a nightmare for many, but for its creators it was to spin wealth, almost literally from nothing.

It was in April 1971 that Fitzwilliam securities was formed. Tony O'Reilly, sure of his success abroad and wanting to prove his "golden boy" im~geat home, headed a trio of entrepreneurs. The other participants were Nicholas Leonard who had just spent a year in the Allied Irish Investtment Bank learning the technical skills of finance; and' Vincent Ferguson, who had likewise spent a year with the bank after a long spell in the public sector:

At first glance the three seemed to have a perfect blend of talents. O'Reilly was a top class rnanagerwith a position which'ensured him access to prized contacts and' resources. After many years as Financial Editor of the Irish Times, and proprietor! editor of Business and Finance, Leonard had an intimate knowledge of the drowsy Irish business scene. Ferguson, an accountant, lent an air of sureness, of concern with detail, a ballast to restrain the whizkids from flying away with themselves.

But there were drawbacks. O'Reilly was not being paid close on £200,000 a year by Heinz for nothing. For that money you work full time and it should have been clear that only a very small portion of his undoubted talents could be devoted to the Irish venture. He could not be involved in day-to-day management.

Leonard had built a name for himself as a trail-blazing, financial journalist. But the name had been made when financial' journalism was in its infancy in Ireland. A look back today' at the pages he edited in the Irish Times and those early editions of Business and Finance, which he founded, would show that they are relatively poor fare compared with their counterparts today. But he was trailblazing and one would not expect otherwise. The trouble was that he was not a manager.
 He was a brilliant ideas man. But his ideas were I10t always practical. It would need the firm hand of a down-to-earth manager to separate the pure metal from the dross.

Ferguson had experience in management but mainly of a deskkbound kind. He was a financial man who waf, better at working out the implications of decisions rather than actually making them,

So while the trio had clear talents in putting together an industrial empire by the use of financial wizardry, none of them had much to offer when it came to actually running the empire. This point was missed by those investors Who pushed share prices up to a level which bore no relationship to what even good managers could have hoped to achieve from the emerging conglomerate.

And because they missed it, anything was possible.

The idea is relatively simple. You first buy a "shell" -a small, sound, but relatively uninteresting company which, has a Stock. Exchange quote. You let it be known that you plan to expand by acquisition. The investing public, knowinq that you are not in itfor the good of your health, clamour for the small proportion of shares which you don't own. They expect the small, sound, but uninteresting company to be transformed into an agressively managed growing one. They want a ride on your coat tails. And who would not have wanted a ride on Tony O'Reilly's coat tails in 1971?

The share price, of course, rises.

The new investors are not only supplying the coat tails but also the money in the coat pocket. Simply on promises and expectations the value of your shareholding has risen. You then proceed to use the higher valued shares to buy other companies. You can even issue new shares.

You buy in profits with the companies-provided you have bought at the right price-and this further enhances the value of the "shell" company's shares. You are-on the rnerry-qo-round. It is like a chain letter.

Theoretically it should be everlasting but it never is. When it becomes impossible to buy in further increases in profit you are left trying to justify the high share price by reference to the profit potential of the companies you own-in conjunction with those shareholders out there. If you can combine the acquisitions .so that two and two make five through rationalisation you might still win. But if you have a mish-mash of companies in different sectors and are in the teeth of a' recession you must lose.

That is what happenedto Fitzwilton. Let us have a look at how the parts of the monster were assembled.

Fitzwilton Securities had an initial share capital of only £100,OOO-a small but sufficient stake for the game in hand. Tony O'Reilly put up £30,OOO-about the price of a small detached house nowadays. Nicholas Leonard and Vincent Ferguson each put in £22,500 and the Ulster Bank put up the remaining £25,000. The bank also put up sufficient loan capital-about £450,000-to enable the experiment to begin.

The selected "shell" was Crowe Wilson and Co. Ltd, a whole sale drapery firm which had weathered many a storm since its formation in the mid-nineteenth century. It had little dynamism but it was forty years since it last reported a loss. Fitzwilliam injected £446,000 into the company in return for a 54 pc stake. Advising the shareholders to approve the move, the Crowe Wilson chairman told them that this money would enable the company to develop more intensively its own wholesaling business and also facilitate further expansion into broader areas either by acquisition or by independent development.

There was to be no independent development. Indeed the whole Fitzwilliam/Fitzwilton saga is marked by a lack of real enterprise-not one new venture was to be established in the following six years. There would be some acquisitions in the drapery trade arid a lot of acquisitions in totally unrelated areas.

Today Crowe Wilson is an ailing member of the stripped down Fitzwilton Group-mainly because no-one would bUy it. Its premises were burnt down in 1973.

The trio had control of Crowe Wilson and still had their initial stake together with the bank loan. The money they paid for the new shares went into Crowe Wilson and they still controlled its use. The same money could be used for further acquisitions. But money was not necessary at first.

John Mckone, an old school friend of~O'Heilly, had a thriving houseebuilding operation going and a 30 per cent stake was acquired in it for £450,000 in "funny money". It did not require cash. The Crowe Wilson share price had risen sharply and McKone got paid in convertible loan stock. The Crowe Wilson shares were then standing at 73p against the 42V2p at which Fitzwilliam bought in. And McKone's convertible stock could be cashed in for Crowe Wilson shares at this higher price. But not straight away, since if more shares were issued the share price mightfall. In the meanwhile he would get 5 per cent on His stock.

McKone got out, while the going was good, in October 1974. Fitzwilton gave back the 30 percent stake and cancelled the loan stock.

But in the meanwhile the McKone profits boosted the Crowe Wilson performance at very little cost. More profits were bought in by acquiring an 80 per cent in wholesalers George J. Crampton Ltd. This was bought on the never-never for £115,000 in cash and 44,000 Crowe Wilson shares. But while the six months back profits were immediately available to Crowe Wilson to boost its declared performance the payment was made in two delayed stages.

Agreement has now been reached for the sale of Cramptons. Tbere is no sign that six years of whizkiddery has made it more viable or more wealth-creating.

The initial cash was still basically intact and the time had come for the first big one. This time it was Dockrells, the long-established builders providers.

Profits had already been bought in and the payments suitably posttponed. Crowe Wilson wou Id be able to show substantially improved profits and the gullible stock exchange punters could be trusted to forget about the fact that the tab had yet to be picked up. But some asset backing for the newfound earnings was needed. Dockrells was not high on profits- although clearly sound - but it was high on assets and in case there was any doubt the asset values were suitably lifted by a revaluation before the acquisition. .

This time cash was needed. The Dockrell family sold a 34 per cent stake in the company together with voting rights of a further 17 percentfor £260,000. Now Fitzwilliam had two acquisition vehicles. Fitzwilton was later to take full control.

Dockrells has now been sold to Jim McCarthy who was acquired along with his company J. S. McCarthy Ltd. He later went on to run Fitzwilton, and now becomes managing director and part owner of Dockrells. The company conntinues-only the ownership has changed. It too, of course, lost its premises by fire.

The acquisitions began to come in sharp succession. J. S. McCarthy Ltd and Graves Ltd were acquired by Dockrells without much recourse to cash. The payments were mainly in shares.

Both of these companies were sold along with Dockrells earlier this year.

Next came a stake in Ulster Stores. It was sold off along with some of the original Crowe Wilson Northern Ireland interests in 1974.

The share price was still booming and our trio's eyes cast further afield. The psychological boost from an acquisition in England would obviously be great-the world would become the oyster in the share punters minds. An opportunity to acquire Chemist Holding, a wholeesaling chemists in Lancashire, came along. Cash was running short so shareholders were asked to stump up some in return for convertible loan stock. The same sort of funny money McKone had taken.

Chemist Holdings has also since been sold.

The Crowe Wilson share price soared higher so the remaining Dockrell shareholders were bought out with paper-Crowe Wilson shares. Next came the acquisition of John Daly & Co, the drink distributors. Again the payment was in Crowe Wilson shares.

Dalys was sold to the British Leventis Group earlier this year.

Later was to come the acquisition of a stake in the U.S. based National Mine Services Ltd.

A very good investment, it has since been sold.

The parts were almost assembled.

The life force was still being generrated. It was time for the final test. The heartforthe body would have to be big and it came in the shape of Gouldings Ltd. Ownership of the centurian fertiliser firm was widely spread. A relatively small shareholding would ensure control. The deal was done.

Gouldings took over Fitzwilliam Securities but it was a reverse takeeover with the trio plus the Ulster bank ending up with a 30 per cent stake in the enlarged group renamed Fitzwilton. That was enough to give them total control. Fitzwilton subbsequently mopped up the outside shareholdings in Crowe Wilson.

At the time Sir Basil Goulding, chairman of the group, wrote "an important reason for the merger is the future association of Goulding with the team and talents which have built up Crowe Wilson in a very short space of time".

Before long those same talents were to be employed dismantling the group.

Gouldings fertiliser business has now passed into the hands of an American multinational and its Dublin plant closed with the loss of 365 jobs.

Things began to go astray. The recession hit hard at the Crowe Wilson companies. Gouldings kept them afloat for a while but then it too began to sustain losses.

The banks,which had been willing to put up 80 per cent of the Fitzwilliam initial capital, took fright and sent in a receiver. Technically he was not a receiver but in effect he was. The level of borrowings had to be reduced and the asset stripping began.

It was a shell to start with and all that is now left is a shell. The original trio are still shOWing a gain. Both Vincent Ferguson and Nicholas Leonard sold- some of their shares along the way in a shrewd bit of profit taking and that together with the trio's current 11 per cent stake in Fitzwilton leaves them showing a joint capital gain of £1.4million.

But in a global sense the loss has been high. There is no evidence that Ireland's industrial base has benefitted an iota from the six years of manipulating, speculation and financial effort. Not one new enterprise emerged from the debacle and it could be claimed that some of the companies involved have lost as a result.

Gouldings might have run into difficulties anyway. Maybe the Dublin operation would have had to be closed. But- it could be argued that it would have survived the bad years following the oil crises either on its own or within a State sponsored grouping with Nitrigen Eireann. Fitzwilton have never given a divisional breakdown of profits so the full extent of Gouldings' subsidlsation of other divisions in the early days will never be known.

The only certain villains in the piece are the banks. The forced sale of the best of Fitzwilton's investments reflect what can now be seen as unnjustified panic. A more orderly hive-off of the less profitable subsidiaries could have reduced the borrowing to sustainable levels without destroying the potential. But everything went even though the sale more than paid off the banks-up to £10 million cash could be left at the end of the day. Plans are afoot for its reinvestment.

Traditionally Frankenstein perrishes in the flames at the end of the movie. That is until the Son of Frankenstein comes along. The trouble is the monster does not fare any better the second tirrie around. What chances the Son of Fitzwilton?