A man in a hurry for his divvy

The Co-op was started 150 years ago to sell cheap food; now a young businessman wants to take it over and make his fortune
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Indy Lifestyle Online
There is a Co-op near where I live. It is drab, poorly lit and badly stocked. The staff are slow; there is one, old-fashioned till. If we are in a hurry, we go to the Asian shop just along the road. Shelves brimming over, good fruit and vegetables, proper bakery bread, home-made samosas. It is everything the Co-op is not.

But I like the Co-op. It is familiar. It stocks bigger items such as family packs of cereals and large cartons of milk. And it is cheap. The Co-op is part of the nation's furniture and the brand name still stands for something: you may not get the best but you will not get the worst and you certainly will not be ripped off.

This remains utterly loyal to the intentions of those celebrated weavers, the Rochdale pioneers who founded the Co-op in 1844 as a way of reducing the cost of food for poor people. The Co-op is a movement (represented for decades on the executive of the Labour Party) owned by real individuals, who collect their "divvies". It is the last company in the land you would expect to cash-in and seek a stock market listing.

MANCHESTER has its own "square mile" of commercial and financial institutions, and the Co-op is dominant among them. The Co-operative Wholesale Society - the CWS - with annual sales of more than pounds 3bn occupies New Century House. The Co-operative Insurance Services - the CIS - with an income of pounds 2bn is next door. Near by is the Co-operative Bank, with assets under management of pounds 4bn.

The CWS is the largest part of the Co-op, owning CIS, the bank, the funeral parlours, travel agents, dairies and some of the retail sites. CWS's annual report, published last week, valued its assets at pounds 770m.

Ownership of the flagship CWS is divided among 300 institutional members, including 51 local independent co-operative retail societies. Biggest of these is Co-operative Retail Services or CRS, still based in Rochdale. The CWS has 300,000 individual members, though the movement as a whole numbers 6 million.

Given such a convoluted ownership, it comes as no surprise that the Co-op's management structure is a museum piece. There are five executives in charge of the CWS, and the top man is named Graham Melmoth, but they are appointed by no less than 30 non-executives, representing different parts of the movement.

Now this arcane myriad of societies and committees has been invaded by a ruthless entrepreneur, a man who intends to become one of the white sharks of modern capitalism.

Andrew Regan, 31, proposes to buy the CWS for pounds 1.15bn. He is willing to put up pounds 600,000 of his own money; the rest is borrowed from banks and backers, many of them from places where they have never heard of the Co- op, such as Monaco, the West Indies and the Channel Islands. The fight pits young against old, lean against fat, self-seeking against mutual dependence, impatient against ponderous.

Regan is a young man in a hurry. The son of Roger Regan, a successful businessman and chairman of Spring Ram, maker of baths, cisterns and wash basins, Andrew left school at 18, married at 23 and was running a major food manufacturing business at 29. There are already five children.

Spring Ram has a market value of pounds 61m. The boy has his sights on a much bigger fish, and he is by no means the first. In the late Seventies and Eighties the champions of British business were takeover specialists. They did not make anything themselves but operated as financial engineers, spotting an opening and making a killing. Their heroes were James Hanson and Gordon White. Both ended up in the House of Lords.

In the Nineties, the prolonged recession and a more cautious approach to lending sapped the energy of the corporate raiders. For a while the world according to Gordon Gekko, hero of the film Wall Street ("greed is good" and "lunch is for wimps"), was out of fashion. The deals dried up.

Now, though, the bids are back, and with them a new breed of businessman. They are in their thirties, smart and well connected. They even have their own dining and social club, the Mandrake, founded by Luke Johnson, who made a fortune from floating the Pizza Express chain.

Members of the 50-strong club include Luke Johnson's partner, Hugh Osmond, 34; Damian Aspinall, son of John, the casino and zoo owner; Richard Thompson, 32-year-old son of David Thompson, founder of Hillsdown Holdings; Chris Akers, the 31-year-old chairman of Caspian, owner of Leeds United Football Club; Charles Dunstone, 32-year-old brain behind Carphone Warehouse and Julian Metcalfe, the 37-year-old joint founder of the Pret a Manger sandwich chain.

With one bound, Regan proposes to leap the lot of them. With his slicked- back hair and dark well-cut suits, Regan even looks like Gordon Gekko. Earnest, without much small talk, he does not like to smile for photographers in case, as he once said, "in five years' time you put this picture next to the bad news".

Five years is a long time in Regan's life. Only five years ago, he raised a loan from 3i, the venture capitalists, and was running a small business selling household cleaners, but to fulfil his ambition Regan needed to be listed on the stock exchange, where he could issue shares to fund acquisitions. He went the same route as fellow Mandrake members and, before them, the Eighties takeover specialists, who first found a poorly performing company which they bought and absorbed their own private company into.

Regan chose a company called Hobson and, for his first proper takeover, he alighted on F E Barber, the CWS's food manufacturing business. All the stores' own-label goods, including the best-selling Co-op 99 tea, came from Barber's. Having negotiated a price of pounds 111m for a company with sales of pounds 300m and profits of pounds 10m, he just had to find the cash.

Despite the absence of a track record, Regan, now aged 28, contacted Swiss Bank Corporation which was keen to break into UK deal-making. They liked his figures, his patter and self-belief and he got his money. SBC loaned him pounds 40 million, the rest was raised by a share issue from Hobson.

Regan knew he had got a bargain. Before it sold to him, in April 1994, the Co-op had invested pounds 50m in Barber's, making their factories some of the best in Britain. Then the sale of assets began. Within months, he had sold off enough of the firm to repay all he had borrowed. He sold the canning business. Yorkshire Foods paid pounds 10m for a packaging subsidiary which was making only pounds 250,000 a year. Finally, in late 1995, he sold the remainder of Hobson to Hillsdown for pounds 121m.

This only whetted his appetite. The Co-op is a main dish. This time his shell company is Lanica Trust, a Guernsey-registered investment trust. According to Lanica's accounts, it has net assets of just pounds 2.9m. The shares are owned by companies based in other offshore tax havens. Lanica's finance director is David Lyons, formerly of Rea Brothers, the merchant bank. Lyons and the CWS are well-known to each other. He advised the Co- op on the sale of Barber to Regan.

A subsidiary of Lanica, called Galileo, has been positioned by Regan to take aim at the Co-op, and it is a sure sign of his growing stature that he is now able to enlist heavyweight City names. His advisers are Hambros; the cash is coming from institutions such as Schroders, Jupiter Asset Management and Killik, the brokers.

Regan's plan is to call a special general meeting of Co-op members, and persuade them to convert the organisation from a mutual society into a limited company. Next, he makes a bid for shares in the company. After that come the dispositions and, perhaps, a stock market flotation. Members of the CWS will receive pounds 1,000 each. In theory, everyone will be quids in.

REGAN, though, may have been too aggressive. An ill-judged leak of some of his plans to the financial press put the Co-op on notice of his intentions some months ago and, for the first time in living memory, the Co-op management has been stirred into action, promising wholesale revamping and injections of capital.

Suspicious that Lanica was briefing journalists with sensitive internal information, including, it is believed, reports in last weekend's financial press detailing its profits not due until last Monday, the CWS ordered a security check. Last Thursday, two senior Co-op executives, Allan Green, responsible for food retailing, and David Chambers, in charge of buying and marketing, were ordered to quit New Century House in Manchester forthwith. According to the CWS the pair were suspended after an investigation into "business dealings between areas of CWS managed by Green and Chambers and companies controlled by Andrew Regan in the period 1994 to 1997".

Stung by reports that Regan's pounds 1.15bn bid was to be made last Friday, the Co-op obtained an injunction against Regan, Lyons, Lanica, Galileo and Green. In the High Court, a judge was shown a video of a red Jaguar pulling into a pub car-park at High Wycombe last Sunday. The Jag was Green's CWS company car. He was joined in the car-park by two men, Regan and Lyons. They were handed a document by Green. They studied the pages before handing them back to Green. In all, the three men spoke for 55 minutes. Then Regan and Lyons got out of the car and Green drove off.

By 4pm on Tuesday, all three men must file sworn affidavits detailing all the confidential Co-op information in their possession and the use to which it has been put.

This is a dirty fight and Regan will battle every inch of the way. He may lose but he will be back, and if the victim is not the Co-op, he'll find another.

Business, front page

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