Global food hunter stalks his prey

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The Independent Online
Francis Mackay has a problem. The normally thorough chief executive of Compass, the fast-expanding contract catering group, appears to have miscalculated on his latest acquisition across the Channel - particularly the defensive mood of Sodexho, its arch-rival in France.

Few Anglo-French corporate ventures have ever run smoothly, so it comes as a surprise to Mr Mackay's fan club in the City that he failed to spot the Maginot Line at Sodexho, which owns 33 per cent of the French associate of Eurest International that Compass is buying from Accor for pounds 589m.

Sodexho is not prepared to be toppled from top position in the world league of contract caterers lightly, and is refusing to let go of its shares. The problem is compounded because Eurest International only owns 33 per cent of the French business, in which the management controls 58 per cent of the voting rights.

Failure to resolve the problem soon will undoubtedly take some gloss off the acquisition of Eurest. The saga could lead to some embarrassing questions for Mr Mackay when he asks Compass shareholders to approve the deal at tomorrow's extraordinary meeting.

He is philosophical about Sodexho's refusal to toe the line, but his argument for pushing ahead with the deal at the current price is not likely to appease all shareholders.

"If you base the price on historical results up to December 1994 then it does look expensive. I wouldn't for a minute say it was cheap, but it is a very high quality business and if you look at Europe and how the markets are shaking down, this is the only strategic option.

"We are quite content to sit there and wait until everything works through. If you were the management, which way would you jump - into the Sodexho camp, or into our camp where we are quite warm and cuddly?" he asks.

He is convinced that the fit with Eurest International is good enough to ease any fears over the French resistance, and also any worries about the 22.5 per cent stake in Compass that Accor gains from the deal.

A private man, Mr Mackay is reluctant to be drawn into a non-food related conversation and uses every opportunity to sell the Compass name as hard as one of his sales team.

Since his promotion a couple of years ago from finance director to chief executive, and then deputy chairman last September, his desire to make Compass a global food force has driven him to acquire companies at a pace that has set some pulses racing in the City.

There were fears that shareholders' pockets would once again be tapped for funds to buy Eurest, as they were to acquire SAS Service Partner in May 1933 and US Canteen Corporation from the troubled Flag-staff company last year. The sighs from analysts and dealers when the French deal was announced without a rights issue were quite audible.

Mr Mackay's style is to work quietly on deals for several years, and then announce acquisitions when the market least expects it.

"We approached Flagstaff for the Canteen acquisition and got exclusivity on the deal because they were selling a business where the people actually wanted to go. We spent the following 12 months trying to get the price we wanted.

"With Accor, we had to convince them to let the business go. Yes, it was a surprise that we got it. It surprised the market, too."

Accor, though, wanted a 45 per cent stake in Compass. This has raised concerns in the City about the individuality of Compass, and whether Accor will let its new UK partner do all the hard work and then move in for the kill.

Mr Mackay is dismissive of such pessimism. He was on the trail of Eurest for four years, three of them in gentle persuasive talks and one year crunching the numbers. However, Accor was forced to hasten the negotiations earlier this year when the UK-based Gardner Merchant contract catering business was bought by Sodexho.

With Eurest International on board, Compass now has fresh markets to plunder, including Asia and South America. Access to European markets gives it new opportunities for its exclusive New Famous Food brand and to lucrative catering contracts, particularly in Germany. The deal also opens the door to markets where governments provide workers with food vouchers.

The added value that Compass brings to Eurest is its growing collection of catering brands. These include Eatons wine bars, Roux Fine Dining, sponsored by the chef Albert Roux, and the New Famous Food division, which owns the franchises for Upper Crust, Le Croissant, Dixie's Doughnuts and Cafe Select.

Compass has also started operating franchises for Pizza Hut and Burger King. A typical catering contract, such as the one with Abbey National's head office in Glasgow, mixes a generic offering with Cafe Select, a Pizza Hut and an Upper Crust.

Mr Mackay firmly believes that success in mass catering lies with branded goods, rather than generic style food. He says consumers quite happily pay more for branded foods.

Sodexho, though, is far from happy with the Compass menu and its prices. The French company's defensive manoeuvre over Eurest is a clear signal that Compass has a fight on its hands to win contracts in Europe. The proof of Mr Mackay's aspirations and strategy will, as ever, be in the eating.