Examination of witnesses (Questions 360 - 379)
WEDNESDAY 3 JUNE 1998
MR A TURNBULL, MR R MOUNTFORD and MR V THOMPSON
360. If they delayed things.
(Mr Mountford) The Government then
decided their policy and held a new competition for the appointment
of advisers. Happily we won that competition and then were appointed
by the Department and BRB to effect the sale within that policy
which as you rightly point out paragraph 1.14 says was to sell
the rolling stock leasing companies as early as practicable in
1995.
361. You did suggest that the sale should
be as quick as possible; that was your advice, that was your final
conclusion.
(Mr Mountford) No, I am not saying
that for one moment.
(Mr Turnbull) That was the remit
we gave Hambros.
(Mr Mountford) If I may repeat this,
we advised early in 1994 that there would be some loss of proceeds.
That was one of the pros and cons of an early sale as opposed
to a late sale. The Government then set its policy, held a competition,
we were appointed to advise the Department on effecting that policy
of a sale within 1995.
362. Is it not in Hambros' interest to have
sold and seen the sale go as quickly as possible? Did you not
play a role in that so you could get your fee as soon as you practicably
could?
(Mr Mountford) If the Government
had decided the sale should take place in 1996 and 1997 then our
period of work, if appointed, would have been shifted back a year
or two and we would have been paid a year or two later. We would
have obviously been occupied doing something else during 1994
and 1995. We are indifferent as to when the transaction takes
place.
363. Really?
(Mr Mountford) Yes.
364. You did not want your money as soon
as possible?
(Mr Mountford) No. This was but
one assignment of many going on.
365. I know it is only £5.3 million;
small beer. Out of interest can you tell me whether there are
any corporate or financial connections or relationships whatsoever
between your company and the winning bidders or subsequent purchasers
of the rolling stock companies?
(Mr Mountford) To the best of my
knowledge there is absolutely no connection. The only reason I
hesitate is that it was Hambros Bank who conducted the assignment
and we have since been acquired. We have no financial interest
in these bidders at all.
366. If you go back to the office later
in the week and have a look through and you do find anything,
would you send us a note on that[17]?
(Mr Thompson) Maybe we should mention
that when the Royal Bank of Scotland were looking to buy Angel
we were shortlisted as a possible adviser to them on that assignment.
Mr Leslie: That is the kind of thing
I should be interested to see.
Mr Davidson
367. May I go back to the question of Stagecoach
and the £1 billion? I want to be clear about the position
there. The best we got was from Mr Thompson who said he had no
recollection of any such figure being mentioned. Presumably you
would not be the sole point of contact in the company. Would you
have been notified about any approach made by somebody like Stagecoach
seeking clarification on price?
(Mr Thompson) Certainly either Roger
Mountford or myself-and we sat opposite each other-would have
been notified of any approach from Stagecoach. Normally we would
be notified in some detail of the nature of the conversation.
I have to say I find it rather surprising.
368. So do we. You can understand the difficulty
we have in this matter since we have two clearly diverging views
about what happened and that is something we will have to discuss.
May I pick up the question of why you were not successful in persuading
more people in the financial community to treat this as long-
term investments? You were really only able to attract venture
capital to it.
(Mr Thompson) I would have thought
the arguments for that had been fairly well rehearsed earlier
this afternoon. People tended to focus on different areas of concern
but the main ones were the risks that the privatisation would
not be completed, the fact that the customers of the train operating
companies were not known, the fact that the lengths of the franchises
were not known and the fact that there was no track record of
the ROSCOs. Those were the four major ones. There were other ones
which concerned people at different times. GE Capital were rather
concerned about environmental problems. I found that one rather
hard to understand but nevertheless I believe that was the case.
What was more important to one person was less important to another.
369. Looking at paragraph 2.31, some concern
was expressed about the extent to which the bidders were unable
to attribute any value to the ability to achieve cost reductions
or improve on forecast revenues. Over the page at the finish of
that paragraph the bidders' attitudes were very cautious. I was
under the impression that you would have been brought on board
to some extent to market this, to sell it, to overcome these anxieties,
to explain the realities of life and so on. Is it therefore not
true to say that to some extent the shortfall in the price achieved,
when looking at what we got compared to what they were later sold
for, is an indictment of your inability to market?
(Mr Thompson) I do not think that
is the case. We went through a very extensive process to market
these very widely and we spent a lot of time with those who expressed
interest in them talking through these various issues. The fact
is that what did become apparent was that the financial markets,
particularly the debt markets, were very hesitant and their understanding
of some of the issues was limited. We have heard already this
afternoon how a number of bidders were constrained by the amount
of finance that they could raise[18].
370. I did not want to come back to the
circular argument about whether or not that was your responsibility
etcetera. Let me pick up the question of the extent to which some
of the potential bidders felt constrained by not having access
either to the facts or to the relationship between the facts as
it were that were held by management and not having access to
the information, understanding the business that the internal
bid had restrained them. What is your view of that? Was that an
issue which you encountered when you were discussing bids with
people?
(Mr Thompson) It was not an issue
which was tabled in any strong way during the process as far as
I recollect. Clearly an incumbent management always has a degree
of advantage. In this particular case the companies are, with
one or two exceptions, relatively transparent and the amount of
information which was made available was very comprehensive through
the information memorandum, the accountants long form report and
the very extensive data rooms which were available to everyone.
It is probably true to say that those who had assembled the strongest
forces in order to do their due diligence, I suppose not surprisingly,
found it easiest to get on top of the complex areas like maintenance.
Maintenance was a difficult area and we heard that British Rail's
records on historical cost of maintenance were somewhat deficient
which made it rather more difficult. However, in my experience
those who were really right on top of it did not find that too
much of a problem.
371. To some extent I do find that surprising.
I very much picked up the responses from those we saw earlier
on that they did feel that was a problem. I am not quite clear
how to pursue that. Do you feel that the price was depressed by
the timetable and effectively having to sell these within a fixed
timetable acted as a fire sale and the maximum amount which could
have been achieved was not achieved?
(Mr Mountford) May I distinguish
between two things: the sequence and the timetable? The sequence,
that is the decision by the Government to sell the ROSCOs first,
had some effect on sale proceeds from the ROSCOs but had other
wider benefits. That was the effect of the sequence. The sale
timetable, once that decision had been made, was not a particularly
tight timetable and indeed the first witnesses today-I think the
gentleman from CVC-said that by the standards of auctions it was
a reasonable timetable. Indeed it slipped a bit towards the end
of 1995 in order to allow the bidders a bit more time. The sale
timetable was a reasonably straightforward one about which we
had no complaints.
372. Let me clarify one point on the timetable.
You were previously engaged by British Rail and then came on to
deal with this contract. At the time when you were engaged by
British Rail did you have the opportunity to express a view as
to whether or not the selling of the ROSCO in that place in the
scheduling would affect the price you achieved at all? Did you
express a view on that?
(Mr Thompson) Yes, we did.
(Mr Mountford) That is documented
in paragraph 2.4.
373. I am a bit anxious about yourselves.
Unless I am mistaken, you are the same Hambros which was involved
with Andrew Reagan in the dealing with stolen documents when he
made the bid to break up CWS. I am not quite clear whether or
not you were all part of the same company at the same time, whether
or not there was any involvement by yourselves in that area of
the business. I think you can understand why we have some anxieties
about the integrity of yourselves and the advice you were giving
to the Department at that time. Could you perhaps give me some
reassurance on that matter?
(Mr Mountford) Obviously the ROSCO
side of it was finished long before the bank took on Andrew Reagan
as a client. Certainly I can speak for Vincent Thompson and me:
we were not involved at all in dealing with Mr Reagan and all
of that.
374. Could you clarify for me the timescale
difference between selling off this and the dealing in stolen
documents?
(Mr Thompson) The last ROSCO sale
was completed in February 1996 and I believe that the Reagan assignment
was taken on in late 1996, probably about December but it was
really active in January/February/March of 1997; about a 12-month
gap.
(Mr Mountford) Let me say this was
not a previous client of Hambros. He was brought to us from another
leading merchant bank, who had acted for him previously, by a
director whom we recruited from that bank.
375. It would be fair to say that he had
the view when he came to you that you were an organisation he
would be happy to deal with and which would presumably deal appropriately
with his style of business. Presumably that was based on your
track record in dealing with other matters, one of which was this.
I think you can understand our anxiety that somebody who was dealing
in stolen documents came to yourselves after you had been dealing
with a number of issues like this and established, presumably,
a reputation of some sort, not all of which presumably was entirely
flattering.
(Mr Thompson) I cannot really see
that there is a direct connection. The reputation we established
in the context of the ROSCO assignment was one of pure professionalism.
I would hope that would have been supported by the evidence you
have heard this afternoon.
376. Perhaps Mr Turnbull could give us his
comments on that?
(Mr Turnbull) I seem to remember
that the director concerned was sacked. Hambros said this was
unacceptable behaviour on the part of one of their directors and
action was taken.
377. If I remember correctly, that was after
he was caught.
(Mr Turnbull) It was only after
he was caught that they knew there was a problem.
Mr Davidson: It was only after it
came out in public that the action was taken. We are left with
the anxiety that had it not come out in public, had the bid been
successful, even though the bank knew at the time they were dealing
with stolen documents, nothing would have happened.
Chairman: Order, order. This has
no relevance to this issue. You have explored it long enough.
Mr Davidson: There is a view—
Chairman: That is my view.
Mr Campbell
378. Mr Mountford, you told my colleagues
that you gave the minister the pros and cons of selling early.
You have just said in answer to Mr Davidson that you had a view
that there would be losses. Were the estimates you gave of potential
losses actually borne out?
(Mr Mountford) I do not believe
we gave estimates.
379. Was the general thrust of what you
were telling them borne out by what subsequently happened?
(Mr Mountford) From early 1994 to
late 1995 a great many things changed, a great many decisions
had to be taken about the lease pricing, the length of leases,
the relationship between TOCs and OPRAF and the ROSCOs, the treatment
of mandatory modifications, the Government underpinning. So many
other decisions had to be made that it would be extraordinarily
difficult to go back and make the sort of analysis you are asking
for.
17 Note: It is perhaps worth noting that the three
eventual purchasers of the Roscos, Stagecoach Holdings, Forward
Trust and Royal Bank of Scotland all looked closely at the opportunity
at the time of privatisation. Back
18
Note by Witness: It should be noted here that detailed arguments
with respect to clawback were submitted to Ministers after receipt
of final bids and, in the light of these arguments, clawback was
rejected due to the fragility of the process. Back
| 
