Peter gave a nervous laugh as he unscrewed the top of the pen. He hesitated until he felt Armstrong’s fingers tightening round his shoulder.
“Your position as deputy chairman comes up for renewal in a few weeks’ time, doesn’t it?” said Armstrong.
Peter signed the first three checks.
“And Paul Maitland won’t go on for ever, you know. Eventually someone will have to take his place as chairman.”
Peter continued signing.
FINAL EDITION
Double or Quits
36.
Daily Express
8 February 1991
CABINET ESCAPES AS IRA BOMB EXPLODES IN GARDEN OF NO. 10
“Bitten Off More than They Can Chew” was the headline on the article in the Financial Times. Sir Paul Maitland, sitting by the fire at his home in Epsom, and Tom Spencer, traveling in from Greenwich, Connecticut, on a commuter train, both read the article a second time, although only half the contents were of any real interest to them.
The press barons Keith Townsend and Richard Armstrong appear to have made the classic mistake of leveraging their borrowings on far too high a ratio against their assets. They both look destined to become case studies for future generations of students at Harvard Business School.
Analysts have always agreed that Armstrong initially appeared to have pulled off a coup when he purchased the New York Tribune for only twenty-five cents while all the paper’s liabilities were underwritten by the former owners. The coup might have turned into a triumph had he carried out his threat to close the paper down within six weeks if the unions failed to sign a binding agreement. But he did not, and then he compounded his mistake by eventually giving such a generous redundancy settlement that union leaders stopped calling him “Captain Dick” and started referring to him as “Captain Santa.”
Despite that settlement, the paper continues to lose over a million dollars a week, although agreement on a second package of redundancies and early retirements is thought to be imminent.
But while interest rates continue to rise and the vogue for cutting the cover price of newspapers continues, it cannot be long before the profits of the Citizen and the rest of the Armstrong Communications group will no longer be able to sustain the losses of its American subsidiary.
Mr. Armstrong has not yet informed his shareholders how he intends to finance the second settlement of $320 million recently agreed with the New York print unions. His only reported statement on the subject is to be found in the columns of the Tribune: “Now that the second package has been accepted by the unions, there is no reason to believe that the cash flow of the Tribune shouldn’t prove positive.”
The City remained skeptical of this claim, and shares in Armstrong Communications fell yesterday by a further nine pence to £2.42.
Keith Townsend’s mistake …
The phone rang, and Sir Paul put the paper down, rose from his chair and went into his study to answer it. When he heard the voice of Eric Chapman, he asked him to wait for a moment while he closed the door. This was somewhat unnecessary, as there was no one else in the house at the time, but when you’ve been the British Ambassador in Beijing for four years, some habits die hard.
“I think we ought to meet immediately,” said Chapman.
“The Financial Times article?” said Sir Paul.
“No, it’s potentially far more damaging than that. I’d rather not say too much over the phone.”
“I quite understand,” said Sir Paul. “Shall I ask Peter Wakeham to join us?”
“Not if you want the meeting to remain confidential.”
“You’re right,” said Sir Paul. “Where shall we meet?”
“I could drive over to Epsom straight away. I should be with you in about an hour.”
* * *
Tom Spencer skimmed through the first half of the article as his train headed past Mamaroneck on its journey into New York. He only began to concentrate fully when he reached the words:
Keith Townsend’s mistake was to want something so badly that he failed to keep to the basic rules of closing a deal.
Every schoolboy knows that if you hope to exchange old conkers for an unopened packet of crisps, not only must you never blink, you must also wait for your opponent to make the opening bid. But it seems that Townsend was so determined to own Multi Media that he never stopped blinking, and without asking how much Henry Sinclair might be willing to sell the company for, he made an unsolicited offer of $3 billion. He then compounded his problems by agreeing to pay the full amount in cash.
Just as the print unions in New York refer to Mr. Armstrong as “Captain Santa,” Mr. Sinclair could be forgiven for thinking Christmas had come early this year—especially when it was common knowledge that he had been on the point of closing a deal with Armstrong for $2 billion, and even that, it is now thought, would have been too high a price.
Having agreed terms, Mr. Townsend found it extremely difficult to raise the cash within the thirty days stipulated by Mr. Sinclair. And by the time he had finally done so, it was on such exorbitant terms that keeping to the punitive repayment schedule may in the end prove terminal for the rest of Global International. Throughout his life Mr. Townsend has been a gambler. With this deal he has proved that he is willing to risk everything on a single throw of the dice.
On reporting their half-year forecast yesterday, Global shares fell a further eight pence to £3.19.
Over and above any problems the two press barons are currently facing, both of them will be particularly hard hit by the steady rise in the price of paper and the dollar’s current weakness against the pound. If the combination of these trends continues for much longer, even their cash cows will run out of milk.
The future of both companies now rests in the hands of their bankers, who must be wondering—like the creditors of a Third World nation—if they will ever see the interest, let alone the long-term debt, being repaid. Their alternative is to cut their losses and agree to participate in the biggest fire sale in history. The final irony is that it would only take one bank to break the link in the lending chain and the whole edifice will come crashing down.
As one insider put it to me yesterday, if either man were to present a check at the moment, their check would bounce.
Tom was the first person off the train when it pulled in to Grand Central station. He ran to the nearest phone booth and dialed Townsend’s number. Heather put him straight through. This time Townsend listened attentively to his lawyer’s advice.
* * *
When Armstrong finished reading the article he picked up an internal phone and instructed his secretary that if Sir Paul Maitland should call from London, he was out. No sooner had he replaced the receiver than the phone rang.
“Mr. Armstrong, I’ve got the chief dealer at the Bank of New Amsterdam on the line. He says he needs to speak to you urgently.”
“Then put him through,”’ said Armstrong.
“The market is being flooded with sell orders on Armstrong Communications stock,” the dealer informed him. “The share price is now down to $2.31, and I wondered if you had any instructions?”
“Keep buying,” said Armstrong without hesitation.
There was a pause. “I must point out that every time the shares drop a cent, you lose another $700,000,” said the chief dealer, quickly checking the number of shares that had been traded that morning.
“I don’t care what it costs,” said Armstrong. “It’s a short-term necessity. Once the market has settled again, you can release the shares back onto the floor and gradually recoup the losses.”
“But if they continue to fall despite…”
“You just keep on buying,” said Armstrong. “At some point the market is bound to turn.” He slammed down the phone and stared at the photograph of himself on the front page of the Financial Times. It wasn’t flattering.
* * *
The moment Townsend had finished reading the article, he took Tom’s advice and called hi
s merchant bankers before they called him. David Grenville, the chief executive of the bank, confirmed that Global shares had fallen again that morning. He felt it would be a good idea if they met as soon as possible, and Townsend agreed to reschedule his afternoon appointments to fit in a meeting at two o’clock. “You might find it worthwhile to have your lawyer present,” Grenville added ominously.
Townsend instructed Heather to cancel all his afternoon appointments. He spent the rest of the morning being briefed on a seminar that the company was due to hold the following month. Henry Kissinger and Sir James Goldsmith had already agreed to be the keynote speakers. It had been Townsend’s idea that all his senior executives throughout the world should get together in Honolulu to discuss the development of the corporation over the next ten years, where Multi Media fitted into the overall company structure, and how they could best take advantage of their new acquisition. Would the seminar end up having to be canceled too, he wondered? Or would it turn out to be a funeral service?
It had taken twenty-seven frantic days to put together the financial package to acquire Multi Media, and many more sleepless nights wondering if he had made a disastrous mistake. Now it appeared as if his worst fears had been confirmed by a hack on the Financial Times. If only he had failed to make the deadline, or had listened to Tom in the first place.
His driver turned into Wall Street a few minutes before two and drew up outside the offices of J.P. Grenville. As Townsend stepped out onto the pavement, he remembered how nervous he had been when he had first been summoned to his headmaster’s study almost fifty years before. The huge plate-glass door was opened by a man in a long blue coat. He touched the rim of his top hat when he saw who it was. But for how much longer would he do that, Townsend wondered.
He nodded and walked on toward the reception desk, where David Grenville was deep in conversation with Tom Spencer. The moment they saw him both men turned and smiled. They had obviously been confident that this was one appointment he would not be late for. “Good to see you, Keith,” said Grenville as they shook hands. “And thank you for being so prompt.” Townsend smiled. He couldn’t remember his headmaster ever saying that. Tom put an arm round his client’s shoulder as they walked toward a waiting elevator.
“How’s Kate?” asked Grenville. “When I last saw her she was editing a novel.”
“It was such a success she’s now working on one of her own,” said Townsend. “If things don’t work out, I might end up living off her royalties.” Neither of his two companions made any comment on his gallows humor.
The lift doors slid open at the fifteenth floor, and they walked down the corridor and into the chief executive’s office. Grenville ushered the two men into comfortable chairs, and opened a file on the blotter in front of him. “Let me begin by thanking you both for coming in at such short notice,” he said.
Townsend and his lawyer both nodded, although they knew they hadn’t been left with a lot of choice.
“We have had the privilege,” said Grenville, turning to Townsend, “of acting on behalf of your company for over a quarter of a century, and I would be sorry to see that association come to an end.”
Townsend’s mouth went dry, but he made no attempt to interrupt.
“But it would be foolish for any of us to underestimate the gravity of the situation we are now facing. On a superficial study of your affairs, it looks to us as if your borrowings may well exceed your assets, possibly leaving you insolvent. If you wish us to remain as your investment bankers, Keith, then we will do so only if we are guaranteed your full co-operation in trying to solve your current dilemma.”
“And what does ‘full co-operation’ mean?” asked Tom.
“We would begin by attaching to your company a financial team under one of our most senior banking officers, who would be given complete—and I mean complete—authority to investigate any aspect of your dealings we felt necessary in order to ensure the company’s survival.”
“And once that investigation has been completed?” asked Tom, his eyebrows rising.
“The banking officer would make recommendations which we would expect you to carry out to the letter.”
“When can I see him?” asked Townsend.
“Her,” the bank’s chief executive replied. “And the answer to your question is immediately, because Ms. Beresford is in her office on the floor below us waiting to meet you.”
“Then let’s get on with it,” said Townsend.
“First I must know if you agree to our terms,” said Grenville.
“I think you can assume that my client has already made that decision,” said Tom.
“Good, then I’ll take you down to meet E.B. so she can brief you on the next stage.”
Grenville rose from behind his desk, and led the two men down a flight of stairs to the fourteenth floor. When they arrived outside Ms Beresford’s office, he stopped and gave an almost deferential knock.
“Come in,” said a woman’s voice. The chief executive opened the door and led them into a large, comfortably furnished room overlooking Wall Street. It gave an immediate impression of being occupied by someone who was neat, tidy and efficient.
A woman Townsend would have guessed was around forty, perhaps forty-five, stood up and came from behind the desk to greet them. She was about the same height as Townsend, with neatly cropped dark hair and an austere face almost hidden by a rather large pair of spectacles. She wore a smartly-cut dark blue suit and a cream blouse.
“Good afternoon,” she said, thrusting out her hand. “I’m Elizabeth Beresford.”
“Keith Townsend,” he said, shaking her hand. “And this is my legal counsel, Tom Spencer.”
“I’ll leave you to get on with it,” David Grenville said. “But do drop into my office on the way out, Keith.” He paused. “If you still feel up to it.”
“Thank you,” said Townsend. Grenville left the room, closing the door quietly behind him.
“Please have a seat,” said Ms. Beresford, ushering them into two comfortable chairs on the opposite side of her desk. As she returned to her own seat, Townsend stared at the dozen or more files laid out in front of her.
“Would either of you care for coffee?” she asked.
“No, thank you,” said Townsend, desperate to get on with it. Tom also shook his head.
“I am a company doctor,” began Ms. Beresford, “and my task, Mr. Townsend, is quite simply to save Global Corp from a premature death.” She leaned back in her chair and placed the tips of her fingers together. “Like any doctor who diagnoses a tumor, my first task is to discover whether it is malignant or benign. I have to tell you at the outset that my success rate in such operations is about one in four. I should also add that this is my most difficult assignment to date.”
“Thank you, Ms. Beresford,” said Townsend. “That’s most reassuring.”
She showed no reaction as she leaned forward and opened one of the files on her desk.
“Though I’ve spent several hours this morning going over your balance sheets, and despite the additional research of my excellent financial team, I am still in no position to judge if the Financial Times’s assessment of your company is accurate, Mr. Townsend. That paper has satisfied itself with an educated guess that your liabilities exceed your assets. It is my job to be far more exacting.
“My problems have been compounded by several outside influences. Firstly, having gone through your files, it is clear for anyone to see that you suffer from a disease common among self-made men—when you’re closing a deal you’re fascinated by the distant horizon, so long as you can leave it to others to worry about how you get there.”
Tom tried not to smile.
“Secondly, you appear to have made the classic error which the Japanese so quaintly describe as ‘the Archimedes principle’—namely that your latest deal is often greater than the sum of all your other deals put together.
“Specifically, you went ahead and borrowed $3 billion from a number of banks and
institutions for the purpose of taking over Multi Media, without ever considering if the rest of the group could produce the cash flow to sustain such a vast loan.” She paused and placed the tips of her fingers together again. “I find it hard to believe that this was a transaction on which you took professional advice.”
“I did take professional advice,” said Townsend. “And Mr. Spencer tried to talk me out of it.” He glanced toward his lawyer, who remained impassive.
“I see,” said Ms. Beresford. “If I fail, it will be the reckless gambler in you that will have been the cause of your downfall. Reading through these files last night and into the early hours of this morning, I came to the conclusion that the only reason you have survived so far is that over the years you have just about won more than you have lost, and your bankers, although often nearly driven to distraction, have—sometimes against their better judgment—retained their confidence in you.”
“Is there going to be any good news?” asked Townsend.
She ignored the question and continued, “My first responsibility will be to go over your books with the clichéd fine-tooth comb, study every one of your companies and its commitments—whatever their size, in whatever country, in whatever currency—and try to make some sense of the overall picture. If, when that is done, I conclude that Global Corp is still solvent in the legal sense of the word, I will move on to the second stage, which will undoubtedly mean selling off some of the company’s most treasured assets, to many of which I feel sure you will have a personal attachment.”
Townsend didn’t even want to think about which treasures she had in mind. He just sat there, listening to her mortician’s diagnosis.
“Even assuming that process is satisfactorily completed, as a contingency plan we will then have to draft a press release setting out why Global Corp is filing for voluntary liquidation. Should it prove necessary, I would release it to Reuters without delay.”
Townsend gulped.
“But if that step proves unnecessary, and we are still working together, I will go on to stage three. This will require me to visit every bank and financial institution with which you are involved, in order to try to convince them to give you a little more time to repay your outstanding loans. Though I must say that if I were in their position, I would not do so.”