by Michael Foster
“I wake up every night and say to myself: Eric, it can’t last — you are too successful. When is it all going to finish?”
The speaker of the mid-1970s was Sir Eric Miller JP. Exposed, disgraced and ruined, he took his own life on Yom Kippur, the Day of Atonement, in the autumn of 1977.
But Sir Eric’s company, Peachey Property, lives on; his successor, John Brown, restructured it in the late 1970s, consolidated progress in the early 1980s and now leads an active concern which has just attempted to grab control of Estates Property Investment Co.
Even without EPIC, brokers reckon Peachey could increase its profits handsomely in the year to June. The value of its portfolio is rising towards £300m, against £35m in 1977, and John Brown is determined to prove that who reckoned Peachey could be a bid target will be proved wrong.
The origins of Peachey go back to 1947 when, as A Peachey & Co, it was taken over by Christopher Hutley and George Farrow. The duo set out to buy parcels of residential property for break up. They merged it with Bell London & Provincial to build a property investment base in 1958.
Eric Miller joined the group in 1953, becoming chairman in 1967 on the retirement of Mr Farrow. Under him, profits rose from £1.1m to £3.3m in 1972.
It is difficult to understate just how greatly Eric Miller desired power, glory and a peerage (not necessarily in that order).
Born an East Ender, he went to work in a small estate agents’ office at the age of 16. He returned from the second world war to become a property negotiator in 1947. Courtesy of his arrival at Peachey and consummate deal-making, he became a paper millionaire by the early 1960s.
He bestowed the Churchill Hotel in London’s West End on Peachey. He took on the giant scheme to develop offices at the front of Euston Station with British Rail (a job which BR had to finish on its own).
Above all else, though, Eric Miller loved to entertain and mix with the rich and famous. All who met Eric Miller became the butt of his jokes, and were convinced that he was fabulously wealthy. He was knighted in Harold Wilson’s Resignation Honours List.
Problems for Sir Eric, entirely separate from the property crash, gathered when questions began to be asked about how he was obtaining money for certain purchases. The suspicion grew that Sir Eric was defrauding Peachey. Director Lord Mais, backed by the board, decided that Sir Eric should resign as chairman and managing director in March 1977. Sir Eric paid back money to Peachey that he acknowledged he owed the following month, though other questions remained.
Shareholders voted Sir Eric off the board the following May. He shot himself in September, with the company still claiming.
Department of Trade inspectors concluded in 1979: “Sir Eric Miller was guilty of numerous misappropriations of company funds. To cover his misdeeds he told lies freely, fabricated false documents and caused others to fabricate and utter false documents.” Counsel for Sir Eric’s estate contended that he intended to repay the company, but the inspectors were unconvinced. Lord Mais, the new Peachey chairman, had to act quickly to put Peachey back on the rails. He turned to John Brown to sort out the chaos: one journalist reckoned Mr Brown would not be able to stand the job more than three weeks.
Mr Brown was made of sterner stuff.
He earned his spurs at Artagen (the former Artizan’s & General Properties founded in 1867) which Peachey made attempts to buy in 1954 and 1957. Mr Brown joined Artagen in 1959, managing it carefully through the early 1970s boom.
In February 1973, Sun Life agreed to lend Artagen £5m a year over eight years at rates of 7.75% to 9.75% to help it expand, and subscribed for a 25% share stake. Sun Life property man Lawrence Cottrell joined Artagen’s board.
By 1975, Artagen had drawn down £15m of Sun Life’s money. In these tumultuous times Mr Brown chose to put a fair bit of Sun Life’s money in the bank rather than buying masses of property; Sun Life faced the prospect of lending Artagen more and more at a fixed rate, while yields on alternative investments like gilts soared to 14%.
Sun Life disliked the scheme so much that, in early 1976, it decided to slap in a 73p a share bid for the shares in Artagen it did not own. Lawrie Cottrell by then had gone to America. Ironically he is now the chairman of Peachey target EPIC.
John Brown’s defence against Sun Life’s attack proved legendary. It was centred on a revaluation of Artagen’s assets which helped its asset backing per share to 123p. Sun Life managed to get control only by increasing its bid to 90p.
After leaving Artagen in mid-1977, John Brown joined the Crown Agents to oversee the rundown of its £133m Australian property portfolio. That October, he also accepted Lord Mais’ invitation to let him run Peachey, just after an announcement that it had lost £2.82m before tax in the half year.
A mere 24 hours after John Brown’s appointment Allied London, the property company run by the Leigh family, amazed the City by announcing a 55p a share bid for Peachey, valuing it at £11.7m. The springboard for the bid was a package of 1m shares bought by Allied from Sir Eric Miller at a price of between 50p and 55p a time.
In throwing down the gauntlet, Allied chairman Morris Leigh said: “Peachey has a good portfolio of properties and we believe it could be better run than it has been.” Quite right, and that was exactly what John Brown wanted to prove.
He commissioned a revaluation of Peachey which demonstrated that its net assets were worth no less than 131p a share. “I was feeling confident before I took up the challenge, and this vindicates my faith in Peachey,” said Mr Brown.
Allied dropped its bid fairly smartly. It made a nice turn out of its Peachey shares, and went on to impress the stock market with its property activities in South East England.
Peachey went on to press ahead with claims against the estate of Sir Eric Miller. John Brown recruited takeover specialist Sir Charles Ball, making him chairman on the subsequent retirement of Lord Mais.
He also got to grips with rationalising Peachey’s portfolio. One move was to put the Park West block of apartments in Marble Arch on the market. Gulf & Western ended up buying the block, and proceeded to break it up. Judging by the subsequent rise and rise in London property prices, some people made a lot of money.
John Brown was just glad to be rid of a management headache. The publication of the Department of Trade report on Sir Eric Miller in early 1979 caused a bit of a rumpus, but Peachey itself was back into £2.87m pre-tax profits by that year, and £3.87m in 1979-80.
In late 1980, John Brown chose to announce a £6.9m rights issue which scarcely seemed necessary given Peachey’s low gearing. It said something about Mr Brown’s conservative approach to financing, though it ended up being at least partly justified by helping to fund a £10.5m cash and share bid for a quiet little quoted property company called Avenue Close. Avenue brought Peachey a string of provincial properties including a supermarket in Barry and 70,000 sq ft of West End office space, though it was scarcely the most exciting property deal of the decade.
As the rationalisation of Peachey’s residential estates continued, Peachey profits leapt to £6.7m in the year to June 1982.
Less than a year later, John Brown bought much of the west side of London’s Carnaby Street to add to the east side which Eric Miller had accumulated in 1971.
Mr Brown is, justifiably, proud of what he has done with Carnaby. Taking in the original worth of the properties and the cost of refurbishment work, the value has soared from £24m to £70m in the last five years. Zone A rents have gone from £30 per sq ft in 1983 to £140 today, and the old T-shirt and jean shop tenants have been gradually replaced. Rents for the upper floors have gone from £3 to £30 per sq ft.
Profits rose to £8.3m in 1983-84, and in May 1985 Peachey bought a portfolio of 18 properties from Lloyds Bank, valued at £32.5m, for £28.2m in cash and shares. It is doubtful that a portfolio like this, yielding 7.2%, would go for such a discount today.
Peachey bought a £16m retail portfolio from Legal & General some while after. Profits stuck at £10.2m in 1984-85 and 1985-86 as residential property sales wound down, though net asset values showed a hefty rise to 358p a share by June 1986. The letting of a key development called Standon House, London (now sold for £14.4m), helped the outturn.
In early 1987, John Ritblat’s British Land bought a 7.26% stake in Peachey, sold to Robert Holmes a Court’s Bell Group in May. This February, the Department of Trade & Industry announced that it was investigating dealings in Peachey shares on May 8, including “any transactions with which J Ritblat, chairman of British Land, may have been connected.” Mr Ritblat denied doing anything wrong.
Robert Holmes a Court sold his Peachey shares in June; as active share dealers and investors he and his companies were badly hit in the October stock market crash. The 1986-87 period saw Peachey in good shape, with pre-tax profits up at £11.6m and net assets per share soaring from 358p to 434p. Its property portfolio was valued at £232m (£182m). Net rental income was £6.9m (£6.1m), while trading profits were £4.7m (£4.1m).
Good schemes in small packages
During the year Mr Brown had bought three retail warehouses, and £8.7m of trading property from Trident Life. Peachey’s development programme was not huge, but it did include 39,000 sq ft in East-cheap; 12,000 sq ft in London’s Haymarket, and 8,000 sq ft on Cannon Street, now prelet at £55 per sq ft. These three projects could cost £35m and may be worth £45m.
However, it has dropped an option to buy 12 acres of land off the M27 after rejection of a planning application for retail warehouse development on appeal.
In the second half of 1987, Peachey bought three property portfolios totalling £34m for trading and investment. Total borrowings were £106.4m by September (or 39% of assets) and Peachey raised £32m through a rights issue. Following the disposal of a property in Mansell Street for £14.4m, Peachey’s overall gearing fell to 26.2%.
Mr Brown was once again putting safety first when it came to financing Peachey.
And, just as the 1980 rights issue was followed by the bid for Avenue Close, this one was earmarked to help finance an unwelcome offer for Estates Property Investment Co.
EPIC is an old-established company founded under the aegis of Property Security Investment Trust’s Bert Perry. Louis Tucker has long been on the board of both companies. His son Nick, formerly with Sheraton Securities, has now moved into an investment shell called Cambium which is backed by David Pearl’s London Securities — an important player in the Peachey tussle. Cambium’s Dickie Freemantle used to work with Louis Tucker for EPIC.
EPIC set out to specialise in industrial property with a decent yield. But in the mid-1970s it got distracted by problems with a Belgian development site.
Post-Belgium, EPIC was regarded as less than exciting. Because just three institutions — Phoenix, Royal Insurance and National Provident — had around two-fifths of the company in the 1980s it was generally assumed that one bidder or another would emerge.
Bid speculation was fuelled in the early 1980s by the decision of an American company called Clabir to buy 22%; since it was a backer to Sheraton, many people assumed that some kind of agreed bid between them would be drawn up. In the event, Clabir was faced with a £7.6m rights issue of convertible stock from EPIC in 1984, as the company progressed plans to move its bias from northern industrial properties to southern commercial ones. This coincided with EPIC’s development of a shopping site in Camberwell.
Clabir got shot of its stake by 1985 as EPIC chief executive Dennis Poole worked to further improve and extend his portfolio. He bought around £7m of property from General Accident and the receivers to Miller Buckley in late 1986. In the year to April 1987, EPIC’s pre-tax profits rose from £3.3m to £3.77m, while its fully diluted asset backing was 214p (190p); 76% of the portfolio comprised industrial-based property; 12% was offices; and 12% shops.
Things got buzzing in May 1987 when London Securities raised £5.64m from a placing of its shares to buy a 10.5% stake in EPIC from Phoenix (now owned by Sun Alliance) which had stayed so loyal for so long.
London Securities is the old Amalgamated Estates, whose fortunes have been dramatically revived by David Pearl. In the year to March 1987, London’s profits leapt 287% to £1.6m, while earnings per share rose 290% to 4.3p, thanks to disposals of investments which brought in £2.2m (£831,000).
One of the intriguing things about London is the way it digs up interesting ventures in which to take stakes. For example, it has 15% of Paul de Savary’s Merchant Manufactory Estates which is about to come to the stock market; shares in quarrying group Explaura, which arrived on the market last year; 29% of Cannon Ball Cricket; and that stake in Cambium.
Keeping the market guessing
However, London’s shares did badly in the wake of the stock market crash. They are currently 43p against a 1987-88 low of 27p and a high of 118p and deserve to do better.
Once David Pearl had taken his initial EPIC stake, he kept the market guessing for a while; then raised it to just over 25% last August through a fresh purchase from Sun Alliance. He indicated that he would be prepared to make a paper bid valuing EPIC at £68m (or 285p a share with his shares at 94p), but pulled out the following October after the Takeover Panel ruled that he would have to bid 300p.
Once the dust from the crash had settled, Peachey came on the scene in January and secured London’s conditional consent to a takeover bid for EPIC, valuing it at £58.5m (or 240p in cash). London stood to make a £1m profit. The offer was designed to force EPIC’s hand following bid discussions: it was not welcome.
Peachey went on to point out that in the five years to April 1987, EPIC’s diluted net assets per share had risen by just 3% compound against its own 13.4% (in the five years to June). The EPIC share price had underperformed the property index by 32.9%, while Peachey’s had outperformed by 22%.
“Peachey is attempting to buy EPIC at a knock down price,” replied Lawrie Cottrell. He forecast an 11% increase in profits for the year to April, and came up with a property valuation of £105m which indicated diluted net assets per share of 258p. By adding in prospective dividends, EPIC argued that the grand total per share was 268p.
Peachey, of course, preferred to argue that the asset figure, after knocking off potential CGT liabilities on resale, would be 227p.
Chancellor Nigel Lawson stepped into this row by scrapping all pre-1982 CGT liabilities. As property shares jumped for joy, EPIC triumphantly brought out a document saying its new contingent CGT liability would be a mere 9p.
John Brown could not ignore that point, and increased Peachey’s offer to 260p, also making it final. He managed to lift Peachey’s stake in EPIC to 33.3%.
London Securities’ decision to finally sell out to Peachey persuaded one party not to make a counterbid for EPIC. But that did not stop Stephan Wingate charging on to the scene last week.
Mr Wingate is an ebullient property entrepreneur who had to fight his way though the 1974-76 property crash, and sold his company to Wimpey in 1976. He later bought some properties back, and floated a new company called Wingate Property Investments on the USM in 1982.
WPI later became the quoted vehicle for Chase Corporation of New Zealand; it went on to absorb Property Holding & Investment Trust for shares, and had high hopes of getting big in property under Patrick Garner. But the stock market crash hit Chase hard, and its controlling stake in Garner’s operation was sold to Trafalgar House.
Not that any of this bothered Stephan Wingate, a wealthy man, who formed a new company called Development & Realisation Trust soon after his departure from WPI.
DRT put together a new company called Giltvote to bid for EPIC just recently. Its backers are led by George Soros, a legendary investment guru from America. Other Wingate backers include Eagle Star, Mercury Asset Management and Kleinwort Grieveson clients.
Giltvote says it is willing to bid 265p a share for EPIC. It snapped up a 25% stake in the market soon after making its intentions clear, and made an offer to buy Peachey’s stake. John Brown refused, threatening to become a minority holder.
Win or lose, John Brown has underscored his reputation as a tough individual well capable of securing growth for Peachey in the months and years ahead. Leaving EPIC out of the calculations, Peachey should bring in profits of more than £14m this year, with the shares at 410p now standing on a yield of around 4%. Assets per share must be at least 465p in the wake of recent rises. Once current stock market jitters subside, they will make a sound investment.
