Sir Robert Winthrop probably should have looked somewhat crushed after having to admit that the bank he had been responsible for during the past twenty of its 267 years of existence was facing a possible catastrophe. But not a sign of the slightest discomfort marred his cheerful features. He rose and picked up the somewhat dusty telephone from his desk. “Mary, could you have some coffee sent in, please?”
A rather nice-looking girl appeared immediately, and while she fussed with the cups, Dr. Walter Hofer’s mind was working at very high speed. The situation was amply clear. Mason had got Sir Robert into one hell of a jam and couldn’t get him out of it. If Winthrop’s hit the skids, David Mason would be finished in Europe. Sir Robert’s plight could only be solved if somebody took a good part of those Transcontinental notes off of his hands—and fast. And both of them expected him to do so. Especially Mason. For the American knew quite well that if it had not been for his massive and continuing intervention in Washington, the people there would have come down on the Swiss banks with every weapon at their disposal years ago. That would have meant the loss of at least $1 billion a year in new deposits from the increasing number of Americans who were finally learning to appreciate the benefits of the Swiss bank secrecy laws. So he would have to help. The only question really open was the nature and amount of the reciprocity. That, no doubt, was the reason for the second item on the agenda—Canadian and Western Oil.
David Mason turned directly toward Hofer, after adding two lumps of sugar to his coffee. “Walter, I think you realize by now that we are going to ask your help in this situation. Robert was most hesitant to approach you due to the rather large amount involved. But I assured him that as long as we took a quite realistic approach to the problem, I was convinced that we could plan on your assistance.”
Hofer finally broke his silence. “There can be no doubt that the amount is extremely large, even for us. Fortunately, I am faced with neither a liquidity problem such as you have, Sir Robert, nor the necessity of immediately setting up such immense reserves for possibly endangered assets as you must in America, David. Nevertheless, if we should agree to assist in removing the Transcontinental paper from the London market, at some point the piper will have to be paid. The cost of the piper could run very high, especially if that airline goes from receivership into liquidation—which seems most probable if the U.S. government does not step in.”
“But do you feel that something can be worked out?” asked Sir Robert.
“I think it will not be impossible. But I can give you no commitment, Sir Robert, until you come with a quite precise suggestion and give me ample time to study your proposal with my colleagues back in Zurich.”
“Just a minute,” interjected David Mason. “I think it would be prudent to stick to a general discussion at the moment. I’d like to touch on the second item on the agenda before we get bogged down in details.”
Mason knew Dr. Walter Hofer. Provided the price—he, of course, always termed it cost—was right, he could give a flat commitment before the day was over. If Hofer decided something, his so-called colleagues back in Zurich would not even be consulted. They would be duly informed at the next meeting of the bank’s executive committee, and that would be that.
Hofer once again broke his silence. “I think that’s a quite reasonable suggestion, David. What’s the problem with Canadian and Western? I can hardly believe that they are also headed for receivership.”
“Well, Walter,” replied Mason, “actually both Robert and I have a certain amount of interest in this company, directly or indirectly. Let us explain.”
The explanation did not take long. Winthrop’s had been serving as the financial advisor to the British-Canadian company for many years. The reason for this affiliation went back to the mid-1950s when the merchant bank had first introduced the shares of the company to the London market. For more than a decade the company had remained relatively unknown, until major oil reserves were discovered on the shores of Lake Athabasca. Overnight the company’s vast properties in that area had achieved a value, or at least potential value, of huge proportions. It was, however, known that this development had greatly outstripped the capabilities of the management of the company. It was likewise known that no changes were in the offing. The English founder of the corporation, and its one and only chairman, ran the company with an iron hand and with a quite placid distaste for either urgency or change. So, after substantial initial enthusiasm, investors had slowly lost interest in the shares of the corporation. At the rate Canadian and Western was moving, the petroleum under its properties would still be exactly there in the year 2000. The fact that Winthrop’s was the corporation’s merchant bankers only added to the conviction that things would move very slowly.
But the Source of All Energy, in His wisdom, had intervened. Just a month ago, the chairman of the company had advised Sir Robert that he was dying of cancer. He instructed Winthrop’s to seek out a merger with a major international oil group. Apparently the man knew the weakness of his management. He wanted to secure the future of the corporation before bowing out.
Sir Robert Winthrop had immediately taken the opportunity to the president of the Republican Bank in New York, his friend David Mason. For Mason, in addition to his board membership at Transcontinental Airlines, had also served for many years in the same capacity with Oriental Oil, which was, in fact, his bank’s most important single customer. Oriental was immediately and definitely interested. Canadian and Western was a downright steal. Its shares were trading at just under £2 on the London exchange. They were worth at least double, based on the Canadian properties alone. Oriental was prepared to make a takeover bid at £4, under the condition of pre-acceptance by the chairman of all the shares which he controlled, either by direct ownership or by proxy. The bid would be sweetened by separate agreements which would guarantee long-term employment for each and every member of the current management and would provide for additions to, but no deletions from, the existing board of directors.
The offer had not yet been made. But David Mason knew that it would be soon forthcoming. In fact, just the week before, he had attended the board meeting at Oriental during which the exact terms to be offered had been agreed upon. Sir Robert had already assured him that the offer as outlined by Mason would receive the chairman’s blessing and that of all of his associates active in the company. Their acceptance would undoubtedly guarantee shareholder acceptance of the Oriental bid.
According to Mason, Oriental Oil was currently in the process of selecting its merchant bank in London to handle takeover operations. It was expected that the offer would become official within thirty to forty days. This process of inserting two merchant banks between merging companies was new to the Americans, although it was quite the normal pattern in London. It usually made good sense. For the London merchant banks served not only as continuing financial advisors to their corporate clients, but quite often also had the roles of lawyers, company doctors, and in awkward instances even confessors to British firms. They were, as a result, ideal marriage counselors. The whole system, to be sure, stands and falls with discretion, and the understanding that such merchant banks would never use inside information for the purpose of private gain. Thus, in a situation like this, it would have been unthinkable for Sir Robert or his bank to have started buying up the shares of Canadian and Western Oil at £2 in the sure knowledge that just a few weeks later they could be sold to Oriental Oil at £4 or better. It would not have been in the spirit of the game, as defined by the City Code on Takeovers and Mergers.