In an exclusive extract from his autobiography, Best Served Cold, Iceland founder Malcolm Walker recalls the aftermath of his hostile bid for Bejam, including the sale of Majestic Wine.
On Monday January 9, 1989 the Iceland board walked into the Bejam head office at Honeypot Lane, Stanmore. I was both scared and excited at the prospect but I guess it was even more stomach churning for the Bejam staff.
We sat down briefly with their board and Kit Farrow from Kleinwort Benson, their bankers, to complete the handover formalities. After that we were on our own. We felt like army officers in occupied hostile territory. Peter, Dick and I made John’s office our base and we spent the next couple of weeks familiarising ourselves with what we had acquired.
The first shock was their sales position. Because we had made a hostile bid we had no information on Bejam other than what was publicly available or what our spies told us.
We had estimated their sales would be 5% down on the previous year but found to our horror they were down 13%. This meant a loss of £35m in budgeted sales and possibly £5m in profit. This would make the £40m combined profit, which the analysts had pencilled in for the year, even harder to achieve.
Moving at speed
Iceland, on the other hand, was performing well and sales were 15% ahead of the previous year on a like-for- like basis. This was a huge difference in performance.
Iceland and Bejam were in the same business, and customers would not easily spot a great difference between our stores, but this illustrated very well how small differences in operation and management enthusiasm could impact on sales. We had a big task in front of us.
The Bejam directors were still in their offices, trying to keep busy but obviously worrying about whether they still had jobs or not. I was constantly hassled by most of them who wanted to know what our plans were and I began to worry and feel perhaps we hadn’t done our homework properly. I mentioned this to Russell Edey and he suggested I should have lunch with a friend of his, Peter Harper, who was a main board director of Hanson Trust.
Hanson were respected and feared takeover specialists at the time and Russell thought I might learn something from the experts.
Lunch was set for Monday February 6 but before it came round we had finalised our plans and started to act with a speed the Bejam directors found bewildering. They then started to complain we were being too hasty!
Lunch with Peter Harper was then not so necessary but it was entertaining. He said: “Let me guess, you looked at Bejam and thought, they’re in the south, we’re in the north, there are not too many overlaps, we’ll give it a crack.” I admitted that wasn’t far from the truth.
Peter said the world imagined that Hanson prepared a huge and detailed plan prior to any takeover but the reality was they didn’t.
Their takeovers were made on much more broad-based assumptions. You never knew what you would find until you got in there and decisions had to be made as you went along. He assured me a two-week familiarisation ‘do nothing’ period was the right way to do it. I felt greatly relieved we were not complete amateurs!
The only part of Bejam we really knew nothing about was their appliance division. Bejam sold more freezers and microwave ovens than anybody else in the UK and they also ran a national repair service.
Integrating the staff
Charles Rathgay ran the division quite autonomously and I had telephoned him halfway through the bid to reassure him that his job would be safe if we won. We’d actually have a real problem if he left! Every other part of the company was no problem for us and we viewed the task ahead as one of simple integration. Simple, that is, except for the staff.
We had to close down their head office in Stanmore and make 600 people redundant but we had to do it in an organised way and gradually transfer all the operations to Deeside. This was going to take about nine months and we had to persuade all the staff to leave when we wanted them to and not to make a mass exodus.
We had to buy Portakabins and stack them two high on the car park at Deeside to accommodate the 300 extra staff we would need there. Recruiting and training that number of people was no easy task. It was nine months of organised chaos but it worked.
Our biggest worry was that Bejam had an ageing mainframe IBM computer which we thought would fall over at any time, but it didn’t. We gradually closed down their office, section by section, yet managed to maintain morale and the goodwill of the staff.
We mixed up the retail teams and put Iceland area managers into Bejam stores and Bejam area managers into Iceland stores and pretty soon we had a unified team. The only problem area was the cold storage and distribution centres, where we suffered unrest and disruption from a much more militant workforce. Bejam had five old-fashioned and inefficient distribution centres, which took us several years to sort out.
A new product range, taking the best from both companies, and also major changes in distribution and store operation were planned to be introduced in a ‘big bang’ fashion on ‘D-Day’, Thursday May 18, 1989. We organised a dinner the night before for 50 of our senior people and invited John Garnett, the president of the Industrial Society and the best motivational speaker in the world, to address us. He inspired everyone for the task ahead and likened the next day to the Normandy landings. It was like a war for a few weeks.
The Iceland lorry drivers went on their first ever strike for more pay and parity with the Bejam drivers and chaos reigned for some time. Gradually, though, order was restored, the new systems settled down and slowly sales improved.
We were keen to keep as many senior Bejam executives as we could but no one was prepared to move to Deeside and gradually they all left. All the directors were made redundant except Charles Rathgay and Jill McWilliam their marketing director. We persuaded Jill to go back into public relations, which had been her forte at Bejam for many years and she was outstandingly good at it. We made her our PR director and she stayed with us for about seven years.
We tried to keep Brian Jackson, their buying director, and he moved to Deeside for a short while but the cultural differences were too big for him to cope with and he soon left.
Iceland was very informal, even our internal telephone directory was printed in alphabetical order of first names. My home phone number was on the wall in the office of every store and we prided ourselves on our approachability and our unambiguous and straight-talking style with our staff. We were very open and honest in our communication.
Bejam by contrast were very formal and hierarchical and no one would dare to jump a reporting line of communication let alone ring me at home with a problem.
In addition to the Bejam stores we also inherited two other businesses, part of Bejam’s attempt at diversification.
We had 46 Victor Value discount stores, which were a Kwik Save look-alike operation, and also a number of retail wine warehouses, which traded as Wizard Wine. Tempting as it was to keep these, we decided we had to be focused. The stakes were too high to be distracted by other ventures and we decided to sell these businesses as quickly as possible.
We offered Victor Value to the highest bidder and were disappointed that Kwik Save was the only interested party.
We didn’t tell them that, of course, and we ran a make believe auction between Kwik Save and nobody else and finally agreed a price of £15.75m.
We also kept eight property freeholds. It was interesting to see how Graeme Seabrook, the chief executive of Kwik Save, approached the sale. He made such heavy weather of it and had a negotiating team of six or eight people versus just me and John Berry. Discussions went on for weeks. It seemed like they couldn’t make any decision but eventually the deal was signed.
Selling Wizard Wine
Wizard Wine was altogether more interesting. John Apthorp rang me and asked if I would sell him the business.
He arrived at Deeside with Tim How, who was to be his new managing director, and in typical John style we had agreed a deal within the hour. I sold him the company for £1.2m plus a case of 1970 Château Pétrus for me!
Château Pétrus is one of the most expensive wines in the world. I’d only tried it once before, in the middle of the bid, at the Four Seasons Hotel with Bernie. We had decided for some reason to treat ourselves but the wine was off! John reneged on the deal. He sent me a case of 1970 Château Haut-Brion plus one bottle of Pétrus. I’ve still got the Pétrus and am waiting for the right celebration to drink it!
I didn’t rate Tim How when he was at Bejam, particularly after his attack on me at Rothschilds, but he did a fantastic job at Wizard Wine, which is now known as Majestic Wine. John floated the company in October 1996 and they now have over 180 branches.
Extracted from Best Served Cold: The Rise, Fall and Rise Again of Malcolm Walker (Icon, £25/ £8.99 eBook).
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