1982: British Woolworth sold to Paternoster

Management Buy-In: the most hostile form of takeover

In 1979 Woolworth marked seventy years in the British Isles. The stores had become a familiar feature in High Streets across the UK and the Irish Republic. Most shoppers and investors believed that Woolies was as British as the fish and chips stocked in its Harvest House restaurant. The image was carefully cultivated. Corporate communications rarely mentioned a parent company.

But the Founder had retained a controlling interest. When the F.W. Woolworth Co. was listed in New York in 1912, the British firm was its first non-consolidated subsidiary, and was 66.7% American owned. The golden share was reduced to 51.7% in 1931 when the British operation took its own listing in London. Few of the new stockholders understood that they had only a minority share.

The parent stayed in the shadows and rarely exercised its powers, until problems at home forced its hand.

1979 was also the centenary of the parent company. The planned celebrations were marred by a hostile takeover bid from Brascan, a smaller Canadian company. The predator offered a significant premium on the share price and promised to tackle the store giant's woeful return on capital employed.

Woolworth promised a rosy future, with big plans for the Eighties. It narrowly won the day. But, behind the scenes, the Board had to contend with big problems. In the Sixties their predecessors had borrowed heavily to open a new, national chain of Woolco stores. The huge out-of-town shops had not delivered a sufficient return to pay off the loans, which would shortly fall due for redemption.

A major reorganisation would be required to set the corporation back on course. This would require painful decisions including the disposal of some prized assets to remain solvent.

For years the British subsidiary had been a cash cow, sending more than half its total dividend back to the USA. But during the Seventies trading performance had declined. The parent had insisted that payments be maintained or increased to keep it afloat. This reduced the amount of capital that the London Board could invest in regeneration and maintenance.

A series of disasters in the UK left New York executives fearing a backlash. Other multinationals were facing high-profile litigation, aiming to make Directors liable for failings overseas. This led to fears of a US Corporate Manslaughter suit after the tragic deaths at the UK Manchester store, particularly after the media criticised the London Board as 'out of touch' on both sides of the Atlantic.

Suddenly the cash cow appeared to be a liability, at a time when the parent company urgently needed cash.

In 1980 the London Board made its first acquisition, using funds raised by selling two major freehold stores in Central London to buy the recently floated Do-It-Yourself chain B&Q. This placed the management firmly in the spotlight. The US parent parachuted in a Deputy Chairman. John L. Sullivan was a heavyweight hard-hitter like the boxer of legend of the same name. Ostensibly the move, along with the appointment of a second American Director, Bud Lynn, was to support the Board through the integration process.

The parent company did not reveal the fact that it had also agreed to talk with a consortium of investors which had made a tentative offer for the golden share in the British chain. Lynn conducted negotiations in secret with the group of former British Sugar executives, who were backed by venture capital from Charterhouse Jaffert.

Technically the consortium's offer was a 'management buy-in', which led most Stateside executives to believe that the firm was planning to hand control to the British Board. Many felt such a move was long overdue as the subsidiary had repaid the initial American investment of £50,000 more than a thousand fold in dividends over its 73 years of trading.

The reality was different. The 'Paternoster Stores' consortium, which took its name from its backers' address in London's Paternoster Square, had found a legitimate way to take control of a business that they had never worked for, without the consent of all-but-one of its investors, above the heads of its Board.

Unlike the incumbents, the consortium proved to be highly skilled media managers. Its members portrayed the offer as taking a British institution into British hands, and replacing a failing management that had been widely criticised with new blood.

By the time the news broke, the British Board had been outflanked. On 1 October 1982 the £310m offer was accepted.

The story featured heavily on television news, with BBC City Editor Philip Hayden concluding his report on the main nine o'clock bulletin on BBC1, "for the first time Woolworth will be British owned".

In 1983 Paternoster became Woolworth Holdings Ltd. Under five years later it rebranded to become Kingfisher plc.

In the Chairman's statement of his first Annual Report, in Spring 1983, John Beckett, reported "Since Woolworth Holdings assumed control of F. W. Woolworth last November, my confidence has increased in the potential that this imaginative acquisition has presented". Beckett went on to set out his five key priorities.

• Merchandise. Tackling the offer which had become uncompetitive and confusing.
• Organisation. Addressing the top-heavy structure by eliminating a whole tier of management at Regional level and trimming down at Head Office
• Inventory. Stock levels were far too high and had already been reduced by £13m at the time of reporting.
• Simplification. Two of the previous management's initiatives were not succeeding and had been culled - B&Q founder David Quayle's '21st Century Shopping' store and the Shoppers World Catalogue Stores chain.
• Freehold Property. The previous management's disposals process had been haphazard and would be reconsidered.

Over the following twelve months, Beckett and Mulcahy (who took primary responsibility for the High Street stores), assembled a new Board to help turn Woolworths around. These Executives were younger, more imaginative and substantially more financially astute than their predecessors. Former Joint MD Roger Jones was the only Director retained from the previous Board. He was tasked with managing Administration and Real Estate, drawing on his encyclopaedic knowledge of the chain's property porfolio. Just one of the newcomers, Richard Harker of Asda, came from a Retailing background.

The new Executives' immediate challenge was to help the Parent Company at Woolworth Holdings to pay off the loans which had funded the purchase of the business. This bridging finance carried punitive 14% interest. Only once this was paid off would they be able to focus on the much needed turnaround in the High Street. Turbulent times and very rapid change lay ahead.