The money-maker leaves no memorial

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Sir James Goldsmith was a gifted businessman and an able financier. Not often are the two talents found in the same person. And he had a third quality, which the obituaries have described as a gambler's instinct.

This last aspect needs careful definition. Goldsmith was a gambler in the sense that a motor racing driver is one. But like Michael Schumacher, he learnt to analyse the corners first and then take them faster - and brake later - than his rivals. This is different from a casino mentality. His chief of staff over many years, Gilberte Beaux, said: "People say he has to be a gambler because it is something they do not understand, and therefore something bad ... no one is prepared to admit that we may have worked a little harder and thought a little more ... before Jimmy takes a risk he looks at it more than anyone can imagine."

If you examine Goldsmith's early years, you find that he started by trying to build up a business in the distribution of pharmaceutical products in France. He acquired the rights, for instance, for Alka Seltzer. Of course, he was under-capitalised and expanded too quickly, resulting in over-trading and near bankruptcy. But he soon started up in the UK, marketing versions of a new drug for the treatment of rheumatoid arthritis, cortisone. Goldsmith had entered an industry of immense potential, in which he was to retain an interest for many years. At the same period, he was also involved in the foundation of the Mothercare chain of baby clothes retailers; unfortunately he had to relinquish his stake at an early stage for want of capital. None the less, these examples show how good Goldsmith was at evaluating business prospects.

In the second stage of his career, during the Sixties and Seventies, Goldsmith demonstrated his skills as a brilliant financier. That he concentrated first on buying and selling companies engaged in food manufacturing and then on food retailing was in a way incidental, except that such industries at least have the virtue of being stable. His stock-market manoeuvres could have taken place in any industrial sector. He understood and was able to take advantage of three financial concepts: momentum, valuation and leverage.

Momentum in stock-market terms means following up one good deal with another. Provided your first transaction looks favourable, then your company's share price will rise. You then use your more highly priced shares as, so to speak, the currency with which you make a second acquisition. If the second deal also appears favourable, your company's shares will rise again. You keep on repeating the process. As Goldsmith told the City after he had acquired Bovril, "We must get on with another acquisition. This bull market is not going to last for ever. We must be quick."

Understanding valuation means understanding that the same asset, say, an empty factory or office block, will command different prices depending upon how it is presented. If the factory or offices feature as surplus to requirements in, say, the balance sheet of a food manufacturing business, they will be less highly valued than if they formed part of a property company's portfolio of buildings ripe for development. Goldsmith was an expert in asset-stripping. He would pay more for a company than conventional wisdom thought it was worth because he understood how to exploit anomalies in the valuation of assets.

Leverage as practised by Goldsmith was a way of maintaining control. The problem with financing a series of take-overs by issuing shares was that Goldsmith's personal holding began to represent a smaller and smaller proportion of the total capital. He solved this problem by stringing companies together: company A would own 40 per cent of company B, which in turn would own 40 per cent of company C, and so on. By controlling the first company, he controlled the last.

For their full effect, asset- stripping and leverage depended upon nobody reading the small print of take-over documents, or, if they did so, upon shareholders not making head or tail of what was going on. This is why Goldsmith came into conflict with the financial press.

He was thwarted by the City pages of the national press and by specialist magazines. They showed how Goldsmith was able to exert control over companies without having fully paid for it. My colleague at the Investors Chronicle of the time, the late Barbara Conway, led the way. Goldsmith retaliated with libel writs. He really detested us. Alongside the exceptional charm, which could make his presence exhilarating, he was capable of evincing pure hatred. But I hadn't realised until reading Nicholas Faith's obituary in yesterday's Independent that Goldsmith had said of Barbara when she was dying, very young, of cancer: "I hopes she chokes on her own vomit."

The rest of Goldsmith's business career is better known. He moved to the United States and applied his stock-market skills on a grand scale, eventually extracting millions of dollars from Goodyear Tyres in return for dropping his take-over plans. He was thus an early exponent of what the Americans call "greenmail". But twice he pulled off the most difficult feats that a financier can attempt - sell at the top. In the UK in 1973, he got rid of most of the property assets he owned just before the worst slump in commercial property since the war. And in the US, he disposed of his Wall Street stocks a few weeks before the crash of October 1987.

In politics, to which he turned in the last stage of his life, Goldsmith's skills were unsuitable. Although British political parties need money, it doesn't purchase votes. The medium of exchange is something different: it is attendance to a constituency over many years; it is shared work with your colleagues; it is embracing a multitude of issues rather than a single topic.

Goldsmith could have lived a further 20 years and devoted every waking minute of them and every pound of his fortune to building his own political party, but he would never have succeeded. He was born for business and finance, and did as well as anyone could. But he leaves nothing by which he will be remembered - except for a rather large pile of cash.

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