Coming clean has left an awful lot of mud

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The Independent Online
WE HAD better start getting used to on-off merger and takeover deals. Courtesy of the London Stock Exchange, they are about to become a regular feature of the City landscape and will engender much hostility - in the twin sense of giving predators an incentive to make hostile takeover bids, and giving everyone involved in the takeover game good cause to stick pins into Michael Lawrence, the Exchange's chief executive.

The directors of SG Warburg certainly have good reason to feel bitter resentment towards the Stock Exchange for its latest attempt to prevent insider dealing.

In an attempt to limit the ill-gotten gains of insider dealers, who are in any case committing a crime, the Exchange is insisting on prompt statements by companies that have either been building a secret stake or holding secret talks in advance of a possible bid.

That was why Warburg and Morgan Stanley, whose highest echelons had been quietly talking for three months, suddenly had to come clean about a fortnight before they intended to publish their nuptials.

It was apparent from the outset that there was more than the odd "t" to be crossed and "i" to be dotted. As we pointed out last week, it was ludicrous for the two sides to commit themselves to a fixed 2-to-1 distribution of shares in the proposed new holding company.

Even in a few weeks, share prices can drift apart sufficiently to make a nonsense of such simplistic calculations. That clearly irked fund managers whose institutions were invested in Warburg.

Now it has ended in tears and recriminations which, were it not for the Stock Exchange, would have been confined behind the privacy of doors closed to us.

Naturally, no self-respecting newspaper would have wished such an outcome. Closed doors are anathema.

But consider the impact on Warburg and its shareholders. Despite the best efforts of the Stock Exchange, the share price has gyrated wildly and misleadingly. Even on Friday, after the engagement was broken off, punters were still climbing aboard in the hope that someone else would chance their arm.

If the Stock Exchange really wanted to prevent a disorderly market, and at the same time punish insider dealers, the crude weapon of a suspended share quote would have met most points at issue. Suspension was widely criticised in the 1970s, because it often left small shareholders unfairly locked in for onerous periods of time. But a short, sharp suspension while the dust clears can be the fairest method of dealing with a fast-moving situation, where the professionals on the spot have an inbuilt advantage over the rank-and-file shareholder whom the Stock Exchange always says it wants to foster.

However, the biggest loser of all in this imbroglio is Warburg itself. What was until a mere handful of days ago revered in the same breath as Cazenove as one of the most powerful houses in the City has had its precious reputation besmirched - possibly for good. A name, once sullied, is never quite the same again and, until this sorry episode, the successors of the late Sigmund Warburg had spread his fame far beyond these shores. It is, most of all, a tremendous personal sadness for Sigmund's still active founding partner, Henry Grunfeld.

Maybe it would have all come out into the open anyway. Maybe the basic misjudgement of waltzing with such a false partner was simply fated to be made public, whatever the Stock Exchange had decreed. Maybe, maybe, maybe. But that decree, itself approved by Warburg's senior executives and put into effect just before the share price starting moving, has left the house naked and near-defenceless.

After all, clients actual and potential will wonder, if Warburg cannot handle its own affairs with more dignity and effectiveness, what confidence can we have that we will escape any more lightly? It is a question that will eat into the sleeping patternsof several Warburg executives in the months to come.

And what of Mercury Asset Management, the group's fund management arm? Relations with its parent have been badly damaged by the public rupture - to an astonishing extent, given the length of time that discussions with Morgan had been going on. A placing of some of Warburg's 75 per cent holding must be on the agenda for the New Year.

The undisguised bitterness of the Warburg and Morgan managements will also cut a swathe through the ambitions of other foreign securities houses that may have seen acquisition as a short cut to establishing a strong position in the London market, now undisputably the crossroads of the global financial marketplace.

Their alternatives are bleak: starting from scratch and relying on the long uphill haul of organic growth, or cautiously trying to form a relationship with a privately owned house, well away from the stock market's gaze. The Warburg-Morgan talks could still lead to a second Big Bang, as many people were speculating - but not in quite the way anyone imagined last weekend.

A BUSINESSMAN can take many setbacks, so long as they leave his ego alone. And now the once-expansive ego of Maurice Saatchi is being stripped bare.

On Friday he was in effect dismissed - removed from the chairmanship of the company he helped to found, kicked upstairs to be president and allowed only to run the agency subsidiary that bears his family name.

Executives in other parts of the group want to change the holding company's name from Saatchi & Saatchi to something suitably anonymous for the 1990s.

Apparently J Walter Thompson and Ogilvy & Mather's parent, WPP - formerly Wire and Plastic Products - is held up as a model of how a giant advertising company should be labelled in these austere times.

When the Saatchis set out in 1970, led by Maurice's brother Charles riding around in a white Rolls-Royce and inventing arresting ideas like the Pregnant Man for the Health Education Council, others were proud to work for the company that boasted their name. It earned invitations to smart parties and respectful nods over the three-hour Charlotte Street lunches that were an essential part of adland in the 1970s and 1980s.

Now the children of those early employees are ashamed of the founding brothers, regarding their name as a liability. Ego intervenes here, too. Staff in other parts of the group resent losing to the hated Saatchi name the credit they feel is rightly theirs.

Thus does the business cycle run, as each generation does its best to rubbish its forebears. However, only rarely is a founder confronted with this unlovely emotion while he still has the key to the executive washroom. That, sadly, has been the amiable Maurice's fate. Charles got out some time ago, rather than put up with the continual backbiting from banks and clients.

Doubts about the brothers' grip on reality never entirely went away after the fiasco surrounding their mooted bid for Midland Bank in 1987, even though they had been encouraged in that fantasy by officials at the Bank of England. When that was abandoned,their credibility suffered untold harm.

Even at the height of this episode, they were reluctant to expound their strategy - to the despair of their advisers and the bemusement of shareholders.

Now the surviving brother is paying the ironic penalty of being a communicator who refused to communicate.

To the venomous betrayal of employees has been added the fatal impatience of shareholders, who have seen almost the entire value of their investment disappear in the past seven years. For that, Maurice deserves to pay a severe price. But the humiliation that was meted out to him in Friday's interminable board meeting was a price too high.

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