Rothschild group faces share deals inquiry

THE Stock Exchange's Insider Dealing Group has launched an investigation into purchases of the voting shares of Great Universal Stores by St James Place Capital, the investment group headed by Lord Rothschild. The share purchases took place ahead of Thursday's announcement that the group would enfranchise the 97.8 per cent of shares that do not have a vote.

The structure of the deal is such that holders of the ordinary (voting) shares will be paid a premium to their value - equal to around pounds 100m - to vote in favour of the enfranchisement proposals.

The exchange is concerned that knowledge of the deal leaked out before it was announced. GUS's advisers say they have been talking about enfranchisement for some time, but detailed proposals have only been formulated in the last few weeks.

The exchange has noted a sharp rise in the price of GUS ordinary shares from pounds 24 at the beginning of the year to pounds 34 on Friday.

Since January, St James Place has increased its holding in the ordinary shares by 2 per cent to 7.1 per cent. The latest purchase, equalling 0.4 per cent of the ordinary shares, was made only a week ago.

Nils Taube, a director of St James Place, said that the group was not in possession of any insider knoweldge. He said the group has held a stake in GUS ordinary shares for two years and was keen to buy them as and when they became available.

'We realised that all the voting shares would have to be eventually merged with the 'A' shares and that there would need to be a premium paid to the ordinary shareholders,' said Mr Taube.

It is understood that GUS's advisers, S G Warburg, Morgan Stanley and Cazenove, consulted some of the holders of GUS ordinary shares about the structure of the deal before it was launched. However all these shareholders were members of the Association of British Insurers and St James Place was not among them.

In any case, St James Place believes the offer is not generous enough. It thinks that GUS should offer up to pounds 400m worth of new shares to ordinary shareholders and is considering voting against the proposals. However, as GUS has already received the support of holders of 65 per cent of the voting shares and it needs only 75 per cent for the deal to go throught, any opposition may be futile.

The enfranchisement of the 'A' shares was accompanied by a package of other innovations. Profits were reported by divisions for the first time, the dividend was sharply increased, and four new non-executive directors were appointed. The steps led to a spate of rumours that further changes were imminent, including from a massive disposal of the shares by the Wolfson Foundation (which was not consulted about the enfranchisement of the 'A' shares).

But the changes appear to be part of a longer-term process that started with the death two years ago of Sir Issaac Wolfson, who had dominated the group for 50 years. This gave his son, Lord (Leonard) Wolfson, who had succeeded his father as chairman in 1981, more freedom to plan for the long-term future of the group.

John Studzinski of Morgan Stanley, which was advising the family, insists that 'this is not a precursor to short-term changes . . . not a preface to a chapter that has been written'. Nevertheless insiders are aware that, as one put it, 'the new non-executives will provide a broader set of personalities, a fertiliser to later changes'.

The two key newcomers are Jonathan Charkham, a member of the Cadbury Committee and former adviser to the Bank of England, and Lord (David) Wolfson, Lord Leonard's cousin, a former GUS executive and now chairman of Next. He is widely tipped to succeed his 65-year-old cousin as chairman.

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