Three Scottish businessmen became overnight millionaires because of government carelessness, it emerged yesterday.
The three - Guido Crolla, Nigel Fortune and Pat Saunders - led a management buy-out team which paid pounds 265,000 for Citylink, a state- owned Glasgow coach operator in August 1990. Less than three years later, in May 1993, they sold it to National Express for pounds 5.1m.
Mr Crolla, the 37-year-old son of a Glasgow ice cream and fish and chip shop baron, was the main shareholder and driving force. He joined Citylink as company secretary and financial director from Ferranti in June 1989. At that time, the firm was part of the Scottish Bus Group, the Government's Scottish bus network, which was due to be privatised.
National Express is believed to have been interested in buying Citylink but the Government was loath to upset local feelings by selling to a 'Sassenach' company. Competition from National Express had also pushed Citylink into losses - hence the low price. To help the business on its way, the Government even injected pounds 1.5m in taxpayers' money to wipe away its debts.
Within a year, the company was showing healthy profits of pounds 427,000. Two years later, the three sold-out for pounds 5.1m in cash making their fortunes and also earning an pounds 800,000 pay day for 33 shareholder employees. 'The boys did well,' an executive at 3i, their corporate finance adviser, said.
Brian Wilson, Labour MP for Cunninghame North, sees it differently, declaring the sale was 'a public scandal'.
In a report published yesterday, the Commons Public Accounts Committee shared his concern, deploring the fact that no claw-back clause - returning a percentage of the proceeds to the Government if the company was subsequently sold at a higher price - was inserted in the original sale document. If it had been - as it was in deals involving other Scottish bus companies - the taxpayer might have been able to see some of the benefit.
The Scottish Office justified the lack of such a condition. 'One has to put the Citylink problem into perspective. The reason they were making a loss at the time of the sale was because they had been subject to very fierce competition by National Express and Caledonian Express who were a National Express subsidiary and they had lost profitability.' Citylink was a small company, 'with very little in the way of assets; therefore there was no income stream which could justify getting a higher figure'.
After privatisation, the Scottish Office said, National Express relaxed their pressure and soon after bought the company. It did not cross officials' minds that National Express would react in that way.
Other aspects of the bus group's break-up alarmed MPs. The privatisation cost pounds 2.3m in advisers' fees - compared with an initial Treasury estimate of pounds 1.1m.
They also noted that the Treasury had received up to pounds 150m in surpluses from the group's pension fund while former employees' pension rights had been enhanced to just pounds 33m. However, they accepted that there had been no loss in public funds from the pension arrangements and the employees' benefits had been improved.Reuse content