City & Business : Maurice was magic with other people's money

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The Independent Online
SAY IT with flowers, went the old advertising slogan. Maurice Saatchi, an advertising man to his bootstraps, seems to have taken the adage to heart, sending no less than £5,600-worth of blooms last year.

Unfortunately, he didn't pay for them. That responsibility fell to Saatchi & Saatchi, the publicly quoted company he then chaired - a publicly quoted company with a fiduciary duty to its tens of thousands of shareholders, big and small.

Similarly, it was Saatchi & Saatchi, the public company, not Mr Saatchi, the private individual, who paid for his £87,000 of travel, restaurant and hotel expenses.

Ditto the cost of running his two, yes two, Bentley Turbos. (Lady Bracknell, I'm sure, would have had something to say on the subject). Ditto the $50,000 cost of a private lobbying campaign last year. Ditto the £33,000 cost of a launch party for the film Damage, which was based on a book by Maurice's wife, Josephine Hart.

And, as we report on page one, ditto the cost of gardeners for him and his brother Charles in earlier times. This at a company which a year later was all but bust and had massively impoverished its shareholders.

Say it with flowers? Not Maurice. He preferred to say it with that most sought-after commodity - other people's money. As more than one shareholder has put it, he was running Saatchi like a personal fiefdom.

The Saatchi brothers are portraying the leaking of this information as a dirty tricks campaign by the new brooms at the company, trying to blacken Maurice's name in revenge for his setting up a rival agency.

Certainly the battle is reaching epic proportions. One minute Maurice triumphs in court. The next, Saatchi & Saatchi gleefully confirms that Maurice is under investigation by the Stock Exchange and sues over a disputed investment in Adidas. Then Charles quits, alleging constructive dismissal. That's in the space of three days last week.

But the expenses revelations are more than ammunition in a slanging match. I'm aware that the advertising industry is like no other. It relies on image, on glitz, on glamour, on making important people feel even more important. Clients have to be stroked. They like to be invited to parties where they can rub shoulders with Cabinet ministers. This all costs money.

But Maurice's expenses were patently out of control. This is not just my opinion, but the view of the man who for four years was responsible for approving them. Thomas Russell, an American entrepreneur, was chairman of the compensation committee of non-executive directors at Saatchi. Between 1990 and 1994 he walked a tightrope, trying to reduce Maurice's colossal expenses without losing the man himself, whose enormous talents he recognised. Last March he handed over the job to Sir Peter Walters, the former BP chairman, believing the problem could be better tackled from this side of the Atlantic. After five years, the annual cost of "running Maurice" had come down from around £2.5m to a more respectable, but hardly modest, £722,000.

The moral of the tale is that keeping control of a well-ensconced chairman, especially a founding chairman, especially one synonymous with the company, especially one you cannot afford to lose, is next to impossible.

Wellcome relief

WELLCOME has won itself a little extra breathing space to come up with a white knight to rescue it from the clutches of Glaxo. On Friday the High Court approved the Wellcome Trust's plan to sell its 39 per cent stake in Wellcome to Glaxo, but it extended the deadline at which the deal becomes irrevocable. Instead of 28 February, the crunch day is now 8 March.

Most people think this won't make tuppence worth of difference, that a counter-bid won't materialise. But no one can accuse Wellcome of not trying to elicit one. Its defence document last week was well-argued. It doesn't pretend it has an independent future. Its point is that Glaxo will be getting control on the cheap if it pays only £9.2bn.

For the first time some analysts were saying that maybe, just maybe, Wellcome had a point. Its sales projections are significantly better than expected and, more importantly, John Robb, chairman and chief executive, reiterated his conviction that margins can be maintained at the 28 to 32 per cent level. (though this doesn't appear in the document).

Zovirax, the jumbo-selling drug for genital herpes and shingles, will lose sales as it comes off patent. But Wellcome's successor treatment, Valtrex, looks set to take up most of the slack. Together they will bring in well over £800m a year for the foreseeable future. Meanwhile the prospects for Retrovir, the HIV treatment, have dramatically improved, because it appears to work well in combination with other drugs. There are great hopes, too, for Lamictal, a treatment for epilepsy.

Wellcome has other rather more exciting drugs in the pipeline than Glaxo, including promising treatments for lung cancer, colo-rectal cancer and migraine. Such future hopefuls have to be treated with great caution, however. They have a habit of not reaching the chemist's shelf. Whisper the word Zonavir quietly in Wellcome's company: the shingles treatment had to be abandoned recently, but not before it had clocked up some £100m in R&D costs.

Glaxo was offering a price of 22 or 23 times historic earnings at the onset of the bid. That came down to 19 times after Wellcome published its 1994 profits. And as a multiple of prospective earnings it is more like 17. Suddenly Glaxo's offer does not look quite so full. But achieving that change in City perceptions won't amount to a solitary aspirin for Robb's big headache unless he can find himself a white knight.

He and his advisers from Barings and Morgan Stanley have been wooing potential counter-bidders since 23 January, when Glaxo tabled its bid. There will have been no shortage of suitors interested in at least taking a look. Among possible white knights are Pfizer, Bristol-Myers Squibb, Roche, Merck & Co, Eli Lilly, Johnson & Johnson and - most recently - our very own Zeneca, the former ICI drugs arm.

None has put its head above the parapet so far, but that is not surprising. It would be good tactics to leave any counter-bid till the last moment. That way the white knight is less likely to be accused of acting hastily. It leaves less time for a third party to enter the fray and keeps the enemy guessing.

But will anyone actually take the plunge? The consensus view in the City and Wall Street is no. Wellcome is a huge mouthful. A counter-bid would have to be in 11 digits with a substantial cash element. Foreign bidders would have the additional problem of making the paper element attractive to a British shareholder. Bids for British companies backed by paper not quoted in London are possible, but rare. Then there is all that goodwill to be written off. Finally there is the strong possibility that any bid would simply flush out a higher offer from Glaxo. No one wants an auction - except Wellcome, of course.

Robb and his advisers can scream as loud as they like that the Glaxo bid undervalues Wellcome. The brutal truth - as anyone trying to sell their house these days quickly learns - is that the value of an asset is only what someone is actually prepared to pay for it now.