GPG builds its cred in UK finance circles

Deborah Hill Cone

Friday 23rd January 2004

UK-based corporate raider GPG has broken into the London old boys club and pulled off a clever deal to buy a majority stake in a £I billion turnover company without stumping up much of the cash to buy it.

With most of its shareholders in New Zealand, Sir Ronald Brierley's GPG gets lots of attention for its local plays, such as its takeover bid for insurer Tower and its failed court tilt at US hedge fund Perry Corporation over Rubicon.

But the London-listed company is also doing some significant deals in the UK, which tend to be barely noticed back here.

The head of GPG's UK operations Blake Nixon, speaking to The National Business Review in London, said the new acquisition, thread giant Coats, now makes up 20 25% of GPG's net assets.

"It's a good chunk," said Nixon, an expatriate New Zealander, who may be offended to be described as Sir Ronald's protégé but he has worked with the investment legend since 1986.

The purchase was carried out by a consortium of existing Coats shareholders led by GPG with the other parties being Jacob Rothschild's investment company, Rothschild's Capital Investment Trust, and a South African investor, Chapman Investments.

GPG managed to do the deal putting up only £80 million of its own cash, using what Nixon describes as "quite a structured transaction."

"We needed a certain level of equity and found others to come in.

"It meant GPG could make a big acquisition without exposing too much of its own resources."

Nixon said Coats was a fantastic business, with market leader status in some categories and a dominant position in the crucial specialty thread market, used in the manufacture of products as diverse as sneakers and seatbelts to teabags and the distinctive orange topstitching on Levis jeans.

The apparel thread used in the construction of one in five garments is supplied by Coats, giving it 20% market share.

Nixon said Coats had been run as a sales organisation, with not enough focus on the costs of getting those sales.

"Some sales are not worth having," he said.

GPG intends to make the company more efficient, in what they describe as introducing a more performance-based culture but which others, film scriptwriters for example, would identify as the classic hatchet job where the pin-striped tycoons Nixon's is a chalk stripe turn a sleepy old-style company into a lean, mean corporation.

Nixon diplomatically said the company had been "typical of a traditional British view."

"You do your time and the company looks after you," Nixon said.

A new chief executive brought in from South Africa would be a "breath of fresh air" with tremendous potential for improving the company's earnings.

And it seems that being uppity colonials in London my words not theirs has paid off for GPG as it builds up its credibility in the seemingly arcane world of the City.

The closed-shop aspect of the UK investment scene is changing, with Eton-educated vowels being drowned out by regional accents to GPG's advantage.

Nixon couldn't help but be aware of the so-called Establishment when he arrived in the UK in 1989. "There were some fund managers who would not see a BIL person then we were very much seen as outsiders," Nixon said.

The close-knit investment community was unhealthily close to the companies they invested at that time with an "implicit pact" that the management would be candid with institutions behind closed doors but in return they would not criticise them in public.

That wasn't the way Sir Ronald did business "we were the enemy" and the inflow of US fund managers had changed the old regime.

Nixon said there were now at least three institutions prepared to challenge companies on their performance.

"The American merchant banks coming in have changed the structure of the City; the old way everything was done on relationships and although there's still a bit of that, it's much more open," Nixon said.

GPG's activist style calling EGMs, going to annual meetings was now more commonplace.

Nixon said the "Sir Ron Brierley factor" was still very significant in the investment philosophy of the group.

"All the board directors have worked on and off with Ron for 16 years," Nixon said.

That had given them a well-trodden path for the way they look at and value companies, he said.

"You've got to be able to relate to what the business does and have a fundamental view on it. We tend to ... put aside any fancy financial structures and say is the basic business good and is there a role for us?"

GPG shares were changing hands this week on the New Zealand Stock Exchange at $1.86, six cents off their 12-month high.

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