OPINON: Just where has Sir Anthony O'Reilly's charm gone to? It certainly hasn't figured in the rationalisation attempts by his glittering Waterford Wedgwood group to woo Royal Doulton, an ailing British ceramics company.
After a three-year equity association with the British ceramics group, the Waterford company is no closer to influencing it. Indeed, Royal Doulton, which is 21 per cent controlled by Waterford Wedgwood, is intent on going its own merry way and in a direction alien to Waterford Wedgwood.
A short statement, issued by Royal Doulton last week but not generally picked up on, said it had acquired a further 25 per cent stake in its Indonesian manufacturing partner, PT Doulton Multifortuna, for £2 million sterling (€3.3 million). This brings its stake up to 95 per cent.
PT is tiny, generating pre-tax profit of £1 million on sales of £8 million in 2001, but is likely to become far more important from 2003 onwards.
The purchase represents a further step in Royal Doulton's plans to move the production of its choice Royal Albert brand to Indonesia later this year. This move will lead to the closure of Royal Doulton's Baddeley Green factory in Stoke-on-Trent with the loss of 500 jobs.
While this is part of the restructuring plans announced earlier this year by Royal Doulton, the rejected Waterford Wedgwood plan envisaged buying the Royal Albert division and moving production to the nearby Barlaston headquarters, and creating 130 jobs. This, according to Waterford Wedgwood, would avoid "the serious political and brand risks" of manufacturing English fine-bone china in Indonesia.
Ironically, Royal Doulton union representatives had been hoping that Royal Doulton would reconsider the closure following Waterford Wedgwood's offer. That is all the more curious since the Ceramic & Allied Trade Union (CATU) criticised Waterford Wedgwood for not indicating what would happen to the rest of Royal Doulton when Royal Albert was sold. That was a very odd comment because the future of Royal Doulton's other operations would have been out of Waterford Wedgwood's influence. CATU is now understood to be reconsidering its stance.
Quite obviously relations between Waterford Wedgwood and Royal Doulton are strained, to say the least. The Waterford company has no board representation, despite being the largest shareholder. The two companies do not co-operate on brands or on rationalisation, which is still needed in the British ceramics industry. And now Royal Doulton's policy on the development of the Royal Albert products is contrary to Waterford Wedgwood's views.
While Waterford Wedgwood has described the 21 per cent stake as strategic - it would be in a strong position to thwart any outside takeover bid - co-operation on the development of the industry was a desired objective. Indeed, part of the Waterford Wedgwood proposed manufacturing and distribution agreements would have saved Royal Doulton between £13 million and £18 million by 2004.
On paper, the total Waterford Wedgwood proposal (including a consideration for the Royal Albert brand and a preferential loan) looked much better for both companies than the three-for-one £18.9 million rescue rights issue.
But the Waterford Wedgwood camp must now be mulling over its defeat. Clearly, it has been outflanked by Royal Doulton. With a 21.16 per cent shareholding in Royal Doulton, it should have been able to defeat the rights proposals. Votes cast in favour exceeded the required threshold - 75 per cent by value - by a mere 0.27 per cent. Had Waterford Wedgwood accumulated more than 25 per cent of the company, it would have won the day.
But what is surprising is that hardly any shareholder voted with the O'Reilly camp.
"Practically everybody, except for a trade competitor (Waterford Wedgwood), voted for the motion," said Mr Hamish Grossart, chairman of Royal Doulton.
Institutions are understood to have strongly resented the Waterford Wedgwood proposals, seeing them as a minority shareholder trying to gain control of a business that was on its knees.
It must be deeply worrying for Waterford Wedgwood that it has had no support after three years' association with the company. Apparently Sir Anthony was not involved in the negotiations and one wonders if Mr Grossart would have succumbed to Sir Anthony's charms had he been invited to Castlemartin for a weekend! But without that intervention it is obvious that the dialogue between Waterford Wedgwood and Royal Doulton has been utterly futile.
The lack of support from any of the institutional shareholders begs the question: why didn't Waterford Wedgwood canvass their support? It appears that Waterford Wedgwood was advised it couldn't do so because it would have placed the institutional shareholders in an insider-trading position. So you had the ludicrous position that the Royal Doulton board was able to circulate its rationalisation and rights details to shareholders, but Waterford Wedgwood could only send its alternative proposals to the Royal Doulton board and not to the shareholders. Hardly a level playing field.
It may seem strange for English fine-bone china to be made in Indonesia and it may not work. However, outsourcing in lower-cost areas, as demonstrated by Waterford Wedgwood, can be a money spinner. If it works for Royal Doulton and leads to increased world capacity for ceramics, that would not be in the Waterford group's interests.
Still, Royal Doulton faces many problems ahead and analysts believe it will be 2004 before it returns to a break-even position (instead of 2002 as expected). In contrast, Waterford Wedgwood, which will be taking up its rights to maintain its 21 per cent stake, is continuing with its recovery programme and expects more acquisitions this year.
