Demolishing the statutes of Liberty

West End store faces uncertain future as property firm bids to reverse decline

The beleaguered institutional shareholders in London's famous West End store, Liberty, have become so used to the family feuding and boardroom culls that they have taken to making up jokes about it. The latest goes something like this: "Why are the carpets fitted in the Liberty department store red? To hide the blood on the floor."

For nearly a decade, the 125-year-old store has been the centre of fractious rows which turned the company from a profitable retailer, once a byword for elegance, into a loss-making also-ran.

Now the Stewart-Liberty family - the descendants of the founder, Arthur Lasenby Liberty - have had enough. Through their financial advisers, they've made it clear that, if they were offered the right price, they would sell. On Tuesday Marylebone Warwick Balfour (MWB), a small, but ambitious property company, is expected to take up the challenge and offer about 300p a share, valuing Liberty at £68m.

If MWB's bid is successful, it will end one of the most fractious affairs in British corporate history.

In the 1980s, Liberty was at peak performance. The Stewart-Liberty family was in the driving seat and the company was making record profits. Liberty almost became a challenger to its better-known rival, Harrods. But the death in 1990 of the chairman, Arthur Stewart-Liberty, the great-nephew of the founder, triggered a pantomime sequence of quarrels which was to send Liberty into permanent decline.

Arthur's two sons - Oliver and Richard - were showing a keen interest in a career at the store. While both were headstrong, they had radically different views on Liberty. Oliver, director of the wholesale division, was the more conservative, and he felt that Liberty should concentrate on its traditional customer base. On the other hand Richard, the merchandising director, was the polar opposite. Known for his outlandish parties, his vision was to turn Liberty into a haven of contemporary design.

When Arthur died, chairman and chief executive Harry Weblin was cast as baby-sitter as the two sons quarrelled over the store's direction. In the meantime, Mr Weblin himself presided over a plan to open 21 Liberty stores in the provinces, that failed to attract any more than a trickle of customers.

As a result, profits slumped and the firm caught the eye of Brian Myerson, the brash son of a South African diamond merchant. In late 1991, fresh from shaking up clothing firm Aquascutum, where he had earned his tag as a "corporate raider", he started to build a stake in Liberty. By 1992 he owned 15 per cent having bought shares at about 430p (the shares stood at 257.5p at the close of trading on Friday).

This unsettled the Stewart-Liberty family, which was now effectively headed by Elizabeth, Richard's and Oliver's stepmother. Her fears were confirmed in July 1992 when Mr Myerson called an extraordinary general meeting. He suggested that the portion of Liberty shares which did not carry any voting rights should be "enfranchised" giving the holders - of which Mr Myerson was one - full rights. He popped up again at the company's 1992 interim results to, in the words of one insider, "have a go at the board".

The interim results weren't good, with a 61 per cent fall in profits. So Mr Myerson declared that this "entirely vindicated his concern about the way the group is run" and he promised to continue being a "pro-active shareholder". His efforts were rewarded in 1993, when he won his first victory. For some time he'd been unhappy with Mr Weblin's dual chairman and chief executive role. So, he managed to persuade the board to draft in a separate chief executive - Patrick Austen.

By now Mr Myerson and the Stewart-Liberty family were at loggerheads. One after another Elizabeth, Oliver and Richard trotted in to see Mr Myerson to air their concerns. They did not come out happy.

Says one source close to the company at the time: "Myerson was intent on hurling bombs at the management. Eventually, they had to yield."

The following year Myerson's plan to change the voting rights succeeded. Europe was proposing to reform the share system, and the Stewart-Liberty family conceded it was better to make the changes before the legislation was introduced.

In 1995, Mr Weblin retired as chairman. Although neither knew it, this marked the turning point in Mr Myerson and Elizabeth's relationship. The pair met at the company's London office in Great Marlborough Street to discuss a replacement. The man they chose was former Newcastle United and BhS boss Denis Cassidy.

After a little gentle persuasion, Mr Cassidy took up the chairmanship in July 1995. Mr Cassidy spent the next four months scrutinising the business. He concluded that drastic measures were required to get the company back on track.

In a telephone call to Elizabeth, the straight-talking Geordie announced his changes. Elizabeth's stepson, Richard, and Mr Austen were to step down from the board. In their place Mr Cassidy was to bring in what he described as the "good guys" - Ian Thomson as chief executive and Andrew Garety as the finance director.

Elizabeth was secretly horrified - especially by Mr Cassidy's removal of Richard.

As well as the management changes, Cassidy launched his blueprint of structural change, "A Strategy for Growth". This would mean closing the 21 provincial stores, shutting a distribution business in the North and the selling off a French fabric printing subsidiary. The jewel in Mr Cassidy's crown was a £39m redevelopment plan of Liberty's Regent Street site, that he claimed would breathe new life into the store.

While Mr Cassidy was preoccupied with this, Elizabeth and Mr Myerson had formed an unlikely alliance and were hatching a plan to oust the chairman they had just appointed. Mr Cassidy says: "The one thing I never expected was that the Stewart-Libertys and Mr Myerson would marry up. I still can't believe it. If I were to say that they were at war with each other it would be a huge underestimation.

"Mr Myerson came to the conclusion that he had a better plan - to split Liberty into two: a retail and a property company. Remarkably, he managed to persuade the Stewart-Liberty family that the deal was better than my plan."

In autumn 1997 battle lines were drawn. Mr Cassidy and his board would go head-to-head with Mr Myerson and the Stewart-Liberty family at a December shareholders' meeting. But, before that, there was plenty of mud to be slung.

In his defence document, Mr Cassidy claimed that his removal would "destabilise" the company and would "prejudice" the progress of his development plan. Furthermore, he accused Elizabeth and Mr Myerson of betrayal, saying that when appointed he received assurances that there would be no interference in his management of the company.

His opponents' document attacked him for failing to disclose information on his plans and criticised the redevelopment as costly and unnecessary. Moreover, they mocked the 1.5 per cent rise in the company's market value which had taken place since Mr Cassidy had been in charge. They pointed out that by contrast the FT-SE Small Cap index had risen by 30 per cent.

At the tense shareholders' meeting held 13 days before Christmas, the dissenters won with 10.9 million shareholders backing Mr Myerson, as opposed to 8.7 million backing the board. Mr Cassidy was quickly ejected, followed by Mr Garety and Mr Thomson the following month.

So Mr Myerson finally won his place on the board - along with Odile Griffith, the Stewart-Libertys' financial adviser who had backed the boardroom cull. Together they brought in the present management team: Michele Jobling as chief executive, Philip Bowman as chairman, and Brian Muirhead as finance director.

But it wasn't plain sailing from there. In late 1998 Mr Cassidy successfully sued Liberty for breach of contract and won £274,500 in damages.

Months before, Liberty had announced a dismal set of results that saw the firm plunge £11m into the red due to write-offs from the aborted redevelopment plan. Since then the board hasn't been able to do much better. Liberty's last results in September saw it still in the red with pre-tax interim losses of £879,000.

Whether MWB - if it wins the bid - can reverse this decline remains to be seen.

It is understood that the property group, headed by Richard Balfour-Lynn, plans to turn Liberty into an e-tailer by forming a partnership with Illuminator, an internet incubator fund, part owned by Mr Myerson. It also plans to convert much of Liberty's property into serviced offices, fundamentally changing the nature and cash flow of the business.

And whether Liberty's current board will remain intact is debatable. One thing is sure: while the Stewart-Liberty family - who control 20.7 per cent of the shares - will no longer be associated with the Liberty name. The influence of Mr Myerson - who has a 16.9 per cent stake - on the historic store will become stronger than ever.