THE FALL OF THE HOUSE OF SAVOY

After a siege of 40 years, it seems that Britain's most famous hotel group has been captured

by the infidel, reports Martin Vander Weyer by the infidel, reports Martin Vander Weyer IN A SEASON of ceasefires, yet another historic peace settlement is upon us. Next Tuesday, the board of the Savoy Group is expected to announce that it has, at last, agreed terms with Forte plc, which, in the person first of Lord (Charles) Forte and latterly of his son Rocco, has been besieg- ing them for 13 years to gain control of their exquisite but underperforming port- folio of London hotels: the Savoy itself, the Connaught, Claridges and the Berke- ley.

In its financial scale the story is unspec- tacular, chiefly of interest to students of pre-1980s takeover defence tactics. But as entertainment it has been colossal: a glam- orous, densely plotted mini-series running intermittently since 1981, with flashbacks to the early 1950s and, indeed, to 1911, when Charles Forte's immigrant father, also called Rocco, opened the Savoy Café in Alloa, Clackmannanshire. As an illustra- tion of social nuance among the rich and the powerful, the old and the new, it is a fascinating parable.

On one side, the Savoy: a small hotel business which chooses to see itself as a unique institution, outside the normal rules of profit and loss, where quality is more important than price: a last bastion of standards of service which have long outlived the kind of grand, cosmopolitan clientele who expected those standards because that was how their own homes were run; a place with a patina which no designer could replicate, with a cavalier disregard for cost-control and a certain raffishness, a whiff of plutocratic freema- sonry in the grill-room, a hint of afternoon adultery in the river-view suites.

On the other side, the Forte group: a large hotel business which is also a mass caterer, whose brand-name is so indelibly déclassé that it is not displayed on its flag- ship hotels; a giant conglomerate, a tri- umph of capital accumulation, in which just one of more than 800 hotels, the Cum- berland at Marble Arch, boasts more bed- rooms than the entire Savoy group; a success based on systematic attention to the minutiae of housekeeping, ridiculed by detractors as a mania for central buying and portion control; a sense of style which makes Forte hotels the kind of place you would book for a departmental dinner- dance or a golden wedding, but never for a honeymoon.

The contrasting resonances are personal as well as corporate. The story has been driven by the animosity between the small, aggressive, Thatcher-ennobled Forte, now 85, and Sir Hugh Wontner, the tall, the- atrical grandee, Lord Mayor of London and Clerk to the Royal Kitchens, chairman of the Savoy for 36 years, who died last year.

Forte is, in fact, the last and most obses- sively persistent of a long line of suitors for the Savoy. All his predecessors were seen off by what he has described as Wontner's 'gift for supercilious indiffer- ence', reinforced by a series of Byzantine share manoeuvres.

The first predator, in 1953, was the property developer Harold Samuel. He was defeated by a ploy known as the Worcester Scheme which removed control of the Savoy's property assets from the shareholders and placed them in a charita- 'Once again, we had a hard time choosing.' ble trust. The scheme was ruled 'invalid' by the Board of Trade, but Samuel withdrew and sold his shares to Savoy directors and their friends. In the following year, Charles Clore entered the bidding.

The Prime Minister, Sir Winston Churchill, who had fond memories of Other Club dinners in the Savoy's Pinafore rooms during the Blitz, instructed his Chancellor, Peter Thorneycroft (later, as it happens, president of Trust House Forte), to put a stop to Clore. Thorneycroft refused to intervene, but the great specula- tor was seen off anyway, as was a half- hearted attempt by yet another property tycoon, Jack Cotton.

In 1955, Wontner and his fellow direc- tors (advised by Sir Anthony Hornby of Cazenoves, who joined the Savoy board and enjoyed a grace and favour apartment at Claridges for the rest of his life) adopted a share scheme which rendered the compa- ny impregnable. This involved the creation of a class of 'B' shares which carried 40 times more votes per share than the exist- ing ordinary (or 'A') shares. The 'A' shares, which accounted for 97.7 per cent of the capital, were reduced to half of the company's voting rights. No well-regulated stock exchange would allow such a struc- ture to be introduced today (Rupert Mur- doch was overruled when he tried something similar with News Corporation in Australia last year) but in the 1950s it was acceptable. And it meant that, so long as Wontner's clique knew that the 'B' shares were safely held, they could cheer- fully ignore the real economic ownership of the company and the normal require- ments of a competitive return on the shareholders' money.

More potential bidders came and went. In 1970, Trafalgar House bought 12 per cent, came up against a brick wall, and sold out to Maxwell Joseph of Grand Metropolitan. He too gave up, selling to the Rothschild Investment Trust, who in turn sold on to the ultra-secretive Kuwait Investment Office.

Meanwhile, Charles Forte had been wooing Wontner since as early as 1968. At that date, although he already owned the Waldorf Hotel in the Aldwych, Forte was still principally a caterer — he owned the Café Royal in Regent Street, but was bet- ter known as the operator of cafeteria con- cessions at Heathrow and Newport Pagnall. In 1970, however, he bought the George V and two other grand hotels in Paris, and in 1974 the turbulent merger between Forte and Trust Houses netted him another 200 hotels, including the Grosvenor House in Park Lane. 'I love these old palaces of hotels,' he wrote in his autobiography.

Wontner brushed off all Forte's blan- dishments, but the two remained on super- ficially amicable terms. In 1980, Wontner dined chez Forte, and wrote afterwards to compliment him on the 'rare enrichments' of his home and table. But Forte claimed that Wontner had later compared the occasion to Hitler summoning the Austri- an Chancellor Dolfuss, and once Forte decided to launch a hostile bid in 1981 all pretence of politeness ceased.

Wontner was prone to remarks like 'I've known little Forte since he ran his milk bar', and once told him that he had always thought Italians 'made good hotel man- agers'. Giles Shepard, the Savoy's Old Eto- nian managing director, announced famously that 'on professional grounds, we have never thought that a vast combine like Tnisthouse Forte, which among other things runs service-stations on the main arterial roads and airport catering, is at all suitable to run services of the quality of the Savoy [group], which must rank among the most renowned hotels in the world'. Forte pere responded by calling Wontner a liar and a hypocrite, whilst Rocco was once reported as saying that he would not employ Shepard as a doorman. What were Forte's motives for pursuing the Savoy so relentlessly? He has always denied that his reasons were sentimental, despite the coincidence of name with his father's café, and the fact that he proposed to his wife, Irene, in the Savoy Restaurant in 1942 and spent part of his honeymoon there. He also denied that vanity was involved: he felt no need of one more splendid acquisition to crown his remark- able career.

But he did not like to be sneered at, as he had demonstrated in an earlier fero- cious clash with Lord Crowther, the chair- man of Trust Houses who tried to outplay him. And, by his own account, he could not bear to see such fine hotels so badly run and dilapidated: he pointed out repeatedly that the Grosvenor House made more profits than the whole of the Savoy group. He was convinced that he could double the Savoy's profitability, not least by removing the entire layer of senior management, with all its luxurious perks. He never got the chance to do so. The result of the 1981 bid was that Forte came to own 68 per cent of the Savoy, at a cost of £38 million, but controlled only 42 per cent of the votes. He obtained no manage- ment power, and had to be content with dividend returns on his original investment of less than 2 per cent.

The Savoy directors, on the other hand, were, if anything, in a stronger position than before, since the great majority of outside shareholders (including the Kuwaitis), who might have expected them to manage the hotels in a more busi- nesslike fashion, had now sold to Forte, who was in baulk. They were free to go on in the old, extravagant way — motivated perhaps by love of their craft, perhaps by snobbery and attachment to the perks which Forte was determined to abolish. One of their decisions — dismissed by Forte as 'sacrilege' — was to sell off the portion of the Savoy building facing the Strand for development as flats, on the grounds that it was easier to run a luxury hotel with a smaller number of rooms.

Indefatigable, Forte set his lawyers to investigating the shareholdings which still stood in his way. In 1988, attention focused on a packet of additional 13' shares, repre- senting 6 per cent of the voting rights, which had ostensibly been issued as part consideration for the purchase by the Savoy of the Lancaster Hotel in Paris. Rather than staying in the hands of the Lancaster's former owner, M. Emile Wolf, these seemed to have found their way into a Swiss charitable trust, the Fondation pour la Formation Hoteliere, which Forte claimed was controlled by Wontner and his associates. 'They are accusing me of fraud, the worst thing apart from murder,' Wont- ner told The Spectator at the time, adding somewhat mischievously, 'only they haven't found the corpse yet as far as I'm con- cerned.'

The Savoy's shareholders, unsurprising- ly, voted not to take legal action against Wontner, and that particular cadaver, if indeed there was one, remained undis- turbed. By now the two senior protagonists were both 80, and occupying presidential rather than executive roles in their respec- tive companies. At last, in 1989, probing and needling from the Forte side forced the Savoy directors to accept a half-heart- ed compromise in which — in return for a promise to buy no more Savoy shares for five years — Rocco Forte and his finance director, Donald Main, were allowed to join the Savoy board, and a committee structure was created which gave them a very limited say in management decisions.

But Wontner's successor as Savoy chair- man, Sir Anthony Tuke, still found it nec- essary to declare his determination to maintain the hotel's fullest traditions, `down to the amount of butter you are given at breakfast'. And despite falling occupancy rates during the recession (in which the Savoy was much harder hit than Forte) the board still refused to allow its hotels to be included in Forte's worldwide computer booking system. In 1992, the Savoy group lost £1.4 million; in 1993 it recovered, but only to a profit of £725,000 on turnover of £83 million, and the divi- dend was halved. Recovery has continued this year, but too late for the Savoy's man- agement, which is clearly open to attack for so many years of feeble results.

Forte's hotels, meanwhile, have pro- duced operating profits (before interest charges) over the past two years of more than £200 million — although the group's net results have been badly affected by the property slump, and some City analysts have suggested that — because not enough depreciation has been charged against the hotel assets — Forte's real profits have been overstated.

Nevertheless, Forte remains much stronger than the Savoy, and its team has finally found what seems to be the key to ultimate control — in the D'Oyly Carte Charitable Trust and the Savoy Education- al Trust, which hold between them 575,000 '13' shares and 25 per cent of the voting power.

The trustees of these two entities, who include some Savoy directors, are required under the Charities Acts 1992 and 1993 to 'act in the charity's interests only and with- out regard to their own private interests', as well as to 'invest prudently to achieve both income and capital growth'. But it is hard to argue that the trustees are fulfill- ing any of those requirements by hanging on to their unremunerative Savoy shares, which they are free to sell even though the trust deeds declare that the original sett- lors of the trusts would prefer them not to do so. On the contrary, there is a strong argument that the best interests of both charities would be served by selling their Savoy shares to Forte, releasing over £40 million of capital which could produce income for charitable distribution at eight times the present level — ironically, much the same argument as was used by the Board of Trade investigator against the Worcester Scheme 40 years ago.

And by not selling to Forte the trustees who are Savoy directors are open to the accusation of acting in their own personal interests, since Forte is highly likely to dis- pense with their services as soon as control is secured. Hence the significance of a recent announcement that the Savoy board 'has become aware' of discussions between Forte and the trusts which 'could extend the level of co-operation . . . in relation to the management of the Savoy'.

Thus the moment of victory cannot be far away for the Hon. Rocco Forte, and his father will have lived to see it. The Wont- ner family, who control 16 per cent, are thought to be wavering. Only Mr Shepard, who seems most likely to lose his job but who can expect to be handsomely paid off, is still manning the barricades.

Is this the end of civilisation in the world of grand hotels? 'Yes it is,' says a rival hotelier emphatically. 'It's ghastly. The Savoy really is a special place. Of course it's ridiculously overmanned, but the secret is the autocratic power of Savoy managers. In the Forte organisation, they're barely more than caretakers. They'll ruin it.'

A more objective judge might say that time has simply passed the Savoy directors by; they are lucky to have lasted so long. Their modern clientele of international bankers and shoppers may enjoy the Savoy's very special ambience, but they might not be prepared to pay for it if it was forced to make a proper commercial return. And the Savoy is not a private fief- dom which can make its own financial rules; it is a public company, using other people's capital.

It is nice to think of grand hotels as palaces of dreams, but, backstairs, they are only businesses after all.