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6th June 2020
Title: Nightmare : The Ernest Saunders Story
Author: Saunders, James
Price: $19.50
Publisher: Hutchinson
Date Published: 1989
Specifications: HC, 288pp., 6.5" x 9.5", 700g.
ISBN: 0091741017
Condition: Very good in dust jacket.
Copies in stock: 3
Category: Food and Beverages More books in this category
Company: Diageo More books about this company
Book type: Company History
Hindsight ID: 132
Nightmare : The Ernest Saunders Story

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Notes: The dramatic story of the CEO, who having taken Guinness from a one-brand company to a flourishing global drinks business, found himself the target of trial-by-media, sued and finally jailed for his part in a fraud associated with the takeover battle for Distillers in the 1980s.

Despite its product's international renown and its familiar name, by the early 1980s Guinness was arguably a moribund business. The family still owned it, but seemed to run it more as a hobby. Consumption of stout was on the wane in developed countries, lager rapidly becoming the drink preferred to bitter. For its profits the firm had become strongly dependent on the Third World, with a frightening proportion flowing from the notoriously volatile economy of Nigeria. To counteract this trend, Guinness had diversified into non-brewing industries, by 1981 owning more 150 such enterprises. They had been acquired more in desperation than as rational business opportunities, the family's response to the crises in its core business being to diversify at random and hope that the more subsidiaries were owned the more the family's problems would just disappear.

Into this sorry state of affairs Ernest Saunders had been recruited from a successful career as head of marketing for Nestle. He stepped straight into "the Guinness information vacuum". Financial information was virtually non-existent, especially for the non-brewing subsidiaries. When he demanded it from the managers of the subsidiaries, they were surprised to be asked! But the immediate problem was rapidly identified: an urgent cost freeze to stop the drain on profits before any large strategic initiative could be embarked upon.

The problem was that the company was simply not viable -- something that only became apparent to Saunders after he had taken on the job. None of the brands were in good shape, sales of stout were not growing, sales of Harp, the Guinness lager, were patchy, the number of wholly unrelated companies that had been acquired in the previous twenty years were going nowhere.

The company had neither management nor systems capable of controlling let alone developing the business. The property portfolio largely consisted of rented properties, so there was even no prospect of lucrative sell-offs to take advantage of the early eighties property boom.

In Saunders' first eighteen months, this apparently impossible situation was rectified. All his acquired experience from his successful earlier career was brought to bear on turning the Guinness fortunes round. He had worked at the advertising giant J. Walter Thompson, then at Beecham's food and drinks division (nine years of hard real marketing work). This led to his eventually handling the sales side of Beecham Products when all the consumer products were amalgamated into one operation, which gave him responsibility for expanding the market into Africa and the Far East. From there, he went to Great Universal Stores, and then on to Nestle.

The first task at Guinness was to tackle the obsolete subsidiaries, most of which had no connection with brewing. In the end, only three of these were thought worth keeping. In eighteen months, 149 of these companies were sold to reduce debt. Meanwhile Saunders' recruited several Beecham executives, who knew his worth, to fill the huge management gaps.

On the publicity front, he decided to switch accounts from J. Walter Thompson to the more dynamic Allen Brady & Marsh, and was persuaded to have more dealings with the financial press, making himself available to City editors and financial journalists.

By 1984 the company was in good health, so much so that Saunders was persuaded that the time had come to re-consider the question of making acquisitions. Whether this was for the good of the business, or because mergers were now the done thing, the commercial fashion, is an open question, the answer to which may explain why it was all to end in disaster over Distillers, at least personally for Saunders.

The major acquisition campaign was the takeover of Arthur Bell, the whisky distillers. This turned out to be a strenuous undertaking, but one which Saunders conducted meticulously, with all the attention to detail for which he had become famous. It was a real coup for the firm as well as for Saunders personally, and it was this success that led him to contemplate the even bigger prize of Distillers, the acquisition of which would turn the combined company into a formidable player on the global market.

For it was Saunders' experience of world markets while working for Beecham and Nestle that persuaded him that the outlook of Guinness and indeed, if not especially, Distillers was too parochial and that future survival depended on such an expansion. Thus the temptation of acquiring Distillers. This would make it a rational decision, rather than the result of bending to the prevailing winds which dictated merger for its own sake. But whether the conduct of the merger partook of the mania aspects of the time is another question.
While Distillers had been happy to canvas candidates for merger, two things soon became apparent: that the Guinness bid was being encouraged and even preferred in order to see off an approach from Argyll, and secondly, that actually the bid from Guinness was viewed as a blocking action to prevent any takeover at all. At least, this was the view of the directors. One of the enigmas of the Guinness/Distillers imbroglio was the apparent difference between the directors and the shareholders as to the future of the company.
Certainly one of the frustrations that Saunders experienced was the way in which Distillers interpreted the Takeover Act according to the book, and was extremely close with company information, even that of which the Act permitted disclosure. This in a scandal one aspect of which was the controversy over allegations of insider trading!

When Argyll successfully persuaded the Office of Fair Trading to refer the Guinness bid to the Monopolies commission, and Saunders was faced with the prospect of putting together a second bid, his memories of the Bell takeover prompted him to throw in the towel -- another little irony given what happened. This was because on the face of it, Argyll, having successfully got the referral, was now given a six month lead in making its own bid, even though it was common knowledge that Distillers didn't want them. However, a way was found of preparing a second bid that avoided the monopolistic aspects of which Argyll complained, and Guinness was soon back in the running.

Even though the reader knows the outcome, James Saunders, Saunders' son, manages to make all this exciting reading. The aggressive Argyll, the reluctant Distillers' directors, the exhausted but persistent Saunders' this was indeed one of the largest and most notorious corporate struggles Britain had ever witnessed as well as being one of the most dramatic.

Naturally, James Saunders is guarded about the Boesky connection and the share dealing that emerged. But nevertheless, this is an able defence of his embattled father. We know what happened: Saunders and some of his colleagues went to jail. That is the main purpose of this book, an apologia for Ernest Saunders, which his overall integrity and previous business success thoroughly deserve. The puzzle that emerges is why, when the outcome for the shareholders was so advantageous, the acrimony and the criminal charges came about. Much of the acrimony over lying in the prospectus concerned the fate of the directors and executives, not deception of the shareholders. The insider dealing alleged to have been done with Boesky and Saunder's apparent deception over this is another matter, but it does give rise to the problem of when information is considered and when not.

Keys: Guinness, Brewing, Beer, Alcohol, Ireland, Argyll, Lord Iveagh, Tom Ward, Takeover Bid, Distillers

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