For the Love of Liberty
The thing you’ve got to wonder about Donald Gordon is why, at the age of 64, he has launched into another stage of his career. Surely after all he has achieved he could pack up a few trunks and retire to somewhere peaceful like the Galapagos Islands, spending his days taking one hour at a time. Rather like mountaineers who regard as witless anyone who poses the obvious question about why bother – especially if there’s a cable-car going that way – Gordon seems to find it difficult to comprehend-why he should be thinking of retiring. Yes, he is 64 but…
Almost in deference to the questions asked of his retirement he has sort of agreed he will be taking that route around 1998. But what he will do on retirement is indeed a puzzling thought. Gordon delights in deal making. He thrives on putting together the most mesmerising of transactions. And he seems at his most relaxed when he has just bedded down some or other scheme and is announcing it to the public. Such is the blur between fun and finance that the uninitiated might be inclined to think Gordon is hosting a business summer school on his regular sojourns at the beautiful Plettenberg Bay on the east coast of the South African cape. It is perhaps more than coincidence that during the Easter and Christmas vacations – when Gordon is most likely to be there – it has become something of a tradition for many of Johannesburg’s business leaders to relocate to “Plett” for their holidays. No doubt libraries of research have been done on the forces that propel seemingly ordinary enough people to become financial giants. Certainly an important part of what continues to propel them must be enthusiasm. Gordon oozes enthusiasm – he has so much to get done before his work or life is over. No matter how large the deal, he pays attention to detail. As one Johannesburg analyst remarks: “That, and his ability to see the whole picture before most people have even started to put the pieces together, is why he is regarded as this country’s most outstanding businessman.” South African mining magnate Harry Oppenheimer agrees. He once described Gordon as “perhaps the greatest businessman of the post-war generation”. Chatting in his Johannesburg head office which is as discrete as the man’s own business style wooden panels pull back to reveal shelves of books or, if the hour is appropriate, a small bar – he is excited. He is keen to move into the next phase of the development of his special creation, Liberty Life. Just back from the sort of tour of the US and Europe that would have jaded Mick Jagger, his energy level is remarkable. On some days during the two-week tour of the financial hot spots of the US and Europe, Gordon and his executives met with as many as five fund manage- meant teams – frequently taking in more than one city, country or state a day. No doubt Gordon was disappointed by the US response to Liberty’s multi-million dollar convertible bond issue. Initial indications were that investors there would contribute as much as $200 million. Then came expectations of bond rate increases and the unexpected announcement that South African Finance Minister Derek Keys would be resigning.
Although there was disappointment about the US, response from Europe and the Far East was very encouraging. Gordon and his team did particularly well with Japanese and Hong Kong investors – unexpected given the previous lack of interest in South African bond or equity investment on this front. But it is not his style to linger over the thought that something didn’t quite work out according to his original plan. Failure is not something he denies; he merely has no grasp of that concept as it refers to his life. Invariably Gordon turns situations to his account. It is merely a matter of patience and adjusting the time frame. If it didn’t seem to work out yesterday, relax, regroup and then, five years down the track, investors will be looking back on a deal that seemed inspired. In the early 1960s, Gordon was looking for a big brother for his fledgling Liberty Life insurance group. He turned to two obvious players on the South African scene – mining and industrial group Anglo American, and the big Afrikaans insurance group, Sanlam. They turned him down. So he turned to the Guardian Royal Exchange (GRE) of London. In 1964 GRE acquired a 75 per cent controlling stake in Liberty Life.
Fourteen years later Gordon approached his own lead bank, Barclays, to help purchase the shares. But managing director Bob Aldworth wouldn’t finance the R21 million of preference shares needed to help fund the R29 million deal. Gordon got support from two of South Africa’s other major banks, Standard and Nedbank. GRE was paid Rl.25c a share for 22 million Liberty Holdings’ shares, being the bulk oftheir stake. The shares are currently listed on the Johannesburg Stock Exchange (JSE) at over R250 a share. The GRE did remain with almost 5 million shares, so all was not lost and the Liberty investment is still the largest in its portfolio. Although Nedbank played a small role in this transaction the relationship potential between it and Liberty was restricted because of its association with South African insurance giant Old Mutual. There were no such restrictions on Standard, and the 1978 deal marked the beginning of a long and fruitful relationship between the two. Crucial to that beginning was Standard’s acquisition of a 25 per cent stake in Liberty for R2 million. Having determined that this was indeed a useful ally who could participate and support Liberty’s long-term growth strategy, five years on Gordon sold Standard another 25 per cent – this time for R85 million. The increase over the five year period seems staggering but on the basis of the current market valuation of Liberty Holdings, the R85 million looks like a give-away as their stake is now worth well over R3 billion ($857 million). The group’s current market capitalisation is just short of R22 billion ($6.28 billion). Standard also acquired joint control of the Liberty Life Group which has a current market capitalisation of over R22.5 billion ($6.42 billion) on the JSE and more than £3 billion in London. It was not to be a one-sided relationship. Over the years, Liberty built up a critical stake in Standard’s holding company, Standard Bank Investment Corporation (SBIC). By the end of financial 1993 this was 39 per cent. Gordon used a similar strategy to develop his UK business in what was regarded as a fairly hostile environment for a South African insurance group. In 1980 Liberty acquired an 11 per cent interest in Sun Life Assurance. There was little doubt Gordon’s entry into the London market was greeted with some hostility. The general anti-South African sentiment of the 1980s did little to improve Gordon or Liberty’s acceptability. But in the early 1990s Gordon secured a formidable ally in French insurance giant Compiegne UAP. Together they secured control of Sun Life. Motivation behind the UAP tie-up was similar to that of SBIC. Gordon brought onside a powerful player whom he could trust to support his ambitions. This is all the more critical when playing in a region far from home base. If this is the sort of modus operandi, it suggests that despite Liberty’s powerful asset base any play on the US insurance industry will involve some sort of partnership with a local it suggests despite the immense strides Liberty has taken since 1974 Gordon still recalls with great fondness the re-purchase of control from GRE. He describes it as “the best deal I’ve ever done”. To put this in perspective, it is worth noting that in the process of building up an insurance group with RI06 billion ($30.28 billion) of assets under its control, Gordon has also played a major part in revolutionising South African shopping patterns. In 1970 Liberty invested R15 million into Sandton City shopping centre. Situated in Johannesburg’s northern satellite town of Sandton, the upmarket convenience centre was the first of its kind in South Africa. This was soon followed by development of the sprawling Eastgate shopping centre to the east of Johannesburg.
Gordon seems determined to precipitate the same sort of revolution in UK shopping patterns. Transatlantic, which is the holding company for his UK operations, has a 75 per cent stake in Capital Shopping Centers (CSC) whose R4 billion ($1.14 billion) of assets comprise seven major regional shopping centres. CSC was listed on the London Stock Exchange in March this year. Gordon is evidently bullish about long termn prospects for the shopping centers and the CSC share price. “From an initial listing price of 206p,” he says, “it is currently at 224p which is well ahead of the property sector index performance.” He points out that CSC has a comprehensive lead on any competitors and believes the move towards regional shopping centers will get a firm boost from Sunday shopping which was recently given the go-ahead by the British parliament. Gordon is coy about plans for the next major phase in the group’s development but does not deny too vehemently persistent market speculation that it will take place in the US. “It’s a big market which I think will be a very interesting one,” he says. “It is a natural market for us to look at. I think there are a lot of opportunities if the right one came our way.” But he believes the US industry has got into a lot of problems and needs to sort itself out. This, and increasing interest rates, is likely to result in some good buying opportunities. A1thOUgh he has a short four years before retirement, Gordon has no intention of blotting his track record with a rushed move on the US. He is adamant: “We won’t rush in.” Right now he believes the best strategy is for Liberty to build on its recent marketing trip and increase the group’s profile in the US. “One day I would like to see Liberty listed on the NYSE,” he says. In the process the Liberty team is lifting the profile of South Africa among fund managers. The trail blazing US trip in July will have made it that much easier for other South African groups to gain acceptance from a US audience. It is no coincidence that Liberty was the first South African group to make a major play on international investors. A reflection of the esteem in which it is held, by the business community and by government, was the Reserve Bank’s decision that Liberty should blaze the trail for South Africa ahead of a government fund raising exercise. Not at all that bad for the 27 year old accountant who, back in 1957, walked the streets of Johannesburg, Durban and Cape Town in search of backers for a dream to create a new and substantial insurance group. It took nine months to raise the statutory minimum of R100 000 needed to start writing business. Those who had invested R1 000 in 1958, and stayed in, were looking at an investment worth over R100 million by 1993. For thousands of others who weren’t lucky or perceptive enough to get in on day one but got in later and stayed a good part of the course, fortunes have also been made. The size of the return may vary. One thing does not: nobody has lost money following Donald Gordon.
Anne Cotty is financial journalist, based in Johannesburg
South Africa, The Journal of Trade, Industry and Investment
Publisher, David Altman
Writer, Anne Cotty
