Wednesday, March 5, 2008
AS ONE of the stars of Channel 4's Make Me a Million series, Chris Gorman beams at the camera, his smile exuding the confidence of a self-made millionaire who has finally achieved an ambition to become a television personality.
But while viewers nationwide have been tuning into this latest corporate reality show, to watch the wealthy Renfrewshire-based tycoon mentor a couple of wannabe millionaires, another reality has been unfolding in the High Court, where Gorman has been one of the stars of a very different drama. In court number 55, Gorman has admitted being reduced to tears during a long-running feud with his accusers in a battle over a business deal that could end up costing millions. Gorman, together with fellow retail entrepreneur Sir Tom Hunter and his business partner Jim McMahon, is being sued by Freeserve founder Peter Wilkinson and UBS investment banker Jon Wood, who claim they were cut out of a business deal by the Scots-based team to buy the Birthdays chain. The case has run for two weeks and is due to conclude this week. Now questions are turning to how the fall-out will affect Hunter and Gorman, and in particular Hunter's relationship with UBS, which has handled £100m of his personal dealings together with other business. An indication that Hunter would move his business elsewhere in the light of Wood's actions was first revealed by Scotland on Sunday in April and now looks certain once proceedings are over. But the lasting damage is yet to be assessed. Hunter and Gorman have been raising their profile in the City, particularly Hunter, who has attempted to pull off some big deals. Failed bids for House of Fraser and Selfridges left some in the City questioning whether he could ever do the big deal that eludes him. Wood further muddied the waters by disclosing in a witness statement a private document detailing Hunter's hitherto unknown interest in Woolworths, WH Smith and Somerfield. Gorman, who has shadowed Hunter's progress to the point of emulating much of his business style - same car, same ostentatious celebrity parties - has also attempted to build a reputation among Britain's big business players. The pair mix with the likes of Bhs owner Philip Green and Sir Richard Branson. Their common playgrounds are the Monaco Grand Prix and holiday homes in the Mediterranean. But over the past fortnight, Hunter and Gorman have been reduced to defending their integrity and business dealings against accusations that they failed to play fair. The men were all shareholders in the Gadget Shop, which went into administration earlier this year. Wood and Wilkinson allege that Gorman, Hunter and McMahon denied them a chance to invest in the Birthdays chain and instead bought it for themselves. Hunter and Gorman claim that everything was above board, that the other shareholders were offered the chance to participate, and that the terms of their original agreement left all parties free to pursue other deals. But the suspicion has been raised that Wilkinson and Wood are attempting not only to prove a breach of fiduciary duty, but also to embarrass their former partners. Michael Crystal, Wood and Wilkinson's QC, asked Gorman: "And we are agreed that you were wearing a flowery shirt," sparking bursts of laughter from pockets of the courtroom, and even cracking a smile on the stoney face of Hunter. On Friday, Hunter's QC, Lord Grabiner, pressed home the point when he said, during his summing up: "I regret having to say this, but Mr Wood is a liar. His primary concern is to damage the reputation of Sir Thomas Hunter in court, and under absolute privilege ... he seeks to portray him as a drunkard and a liar." Disputes of this nature between powerful businessmen do not often come to court. Millionaires with reputations to preserve usually settle their differences behind closed doors. Although Birthdays was sold at a £5m loss and the Gadget Shop collapsed, Wood and Wilkinson are suing for the value of their stakes in the enlarged business at the time the Birthdays deal was done in August 2003. Testimonies as to the value of that stake range from a few million to several hundred million pounds. The combined legal costs incurred by the case are likely to stretch beyond £10m, according to legal sources. As the courtroom row has rumbled over the past two weeks, a stream of colourful allegations about the conduct of all parties involved has been flushed out. Gorman has been portrayed as an ego-driven party animal who throws tantrums over business issues. Hunter has been accused of discussing business issues while drunk and manipulating agreements to suit his own purposes. Wilkinson is accused of being so abusive as to have eroded relations between the two halves of the Gadget Shop consortium. The litigation itself has already been partly to blame for the collapse of the Gadget Shop, as it scared away a potential takeover offer from Game Group, the listed computer games retailer. The dispute is also likely to see Hunter carry out an earlier threat to close his £100m private banking account with Wood's employers at UBS as soon as the verdict is given. Whichever way Justice Warren rules when he delivers his verdict - which is expected before Christmas - the tit-for-tat battle seems to have served no one's reputation favourably. The chain of events that brought Hunter and Gorman into partnership with Wood and Wilkinson began in the early months of 2002. Hunter, who made his first fortune with the sale of his Sports Division retail chain to JJB Sports in 1998, was introduced to Wood through the private banking arm of UBS. Hunter had been a client of the Swiss-based group for some time and wanted the chance to invest alongside UBS in some of its corporate transactions. Wood, a managing director of UBS, is one of the bank's top dealmakers. Within weeks of Hunter and Wood's first conversation, the UBS man alerted Hunter to the possibility of investing in the Gadget Shop. Wood was a friend of Peter Wilkinson, the internet entrepreneur who also owns Hull City Football Club. He had known him for about seven years and had invested in a handful of Wilkinson's businesses. Wilkinson had taken a small stake in the Gadget Shop two years earlier, but it was now on the brink of administration and needed money fast. The three men agreed to get involved. Hunter then suggested that Gorman, with whom he had worked on numerous other projects, also be allowed to join the consortium. By the beginning of May, the four had signed a deal that saw them plough a combined sum of around £1m into the business. Hunter and Gorman ended up with 50% of the Gadget Shop, Wood and Wilkinson with 40%, and the founder John Elvidge with 10%. It was agreed that Gorman was to run the company, initially only on a temporary basis. But relations quickly soured. Wood was angry that the 10% stake given to Elvidge had come from his half of the consortium, diluting his share of the company. Hunter said he asked for this because Elvidge and Wilkinson knew each other well and he did not want the 50/50 balance of the consortium to be upset. Wood said he saw this as "chipping away" at his investment, the court heard, and believed that the balance of power had been tipped in Hunter's favour. But the ill-feeling was put to one side. A few weeks later Hunter indicated that he wanted a share incentive scheme to be introduced for the Gadget Shop's senior management. Given that this included Gorman and Elvidge, who already had sizeable stakes, this was an issue of concern for Wood and Wilkinson. Wood, in particular, was fearful of his stake being diluted again. Around this time Hunter also suggested that another friend of his, retail billionaire Philip Green, be brought on to the Gadget Shop board in exchange for a small stake. Wood and Wilkinson again resisted, seeing this as another attempt to swing control of the company towards Hunter. On the trading front, the Gadget Shop was improving its sales performance under Gorman, and went on to have a successful Christmas period. But it was at the board meeting of February 6, 2003, to discuss the Christmas sales that the underlying tensions appear to have erupted into the open for the first time. Christmas had been good and Gorman was pleased with what he had done. But Wilkinson and Wood were already taking a dislike to him and the court was told that they both thought he had "far too big an ego". Wilkinson is alleged to have repeatedly dubbed Gorman "Billy Big Bollocks" - a term which he admitted in court is one he often uses to refer to someone with an "overrated opinion of themselves". Wood also told the court that "he [Gorman] always seemed to be in the press crowing about how great he was". At the same meeting, Wilkinson told Elvidge that he looked like a "gay Dutchman" when he arrived with dyed hair, wearing an orange shirt. Hunter and Gorman claim that Wilkinson then went on to insult almost everyone in the room. The gruff Yorkshireman is alleged to have described the Gadget Shop's human resources director as a "jumped-up wages clerk", the court was told. He is also alleged by Hunter to have referred to the entire operational management as "c***s". And Wilkinson admitted in his written evidence that he asked how the "same f***ing team" had done so well when they had done so poorly the year before. Wilkinson and Wood claim this was all good-hearted banter. Gorman and Hunter claim it was offensive and created an "acrimonious" atmosphere in the room. After the meeting with management there was a meeting just for the shareholders, the court heard. No one disputes that when the issue of Gorman's possible share bonus came up in this meeting, the mood turned sour. "Putting it bluntly, I blew a fuse and vented a lot of frustration that had built up," Wilkinson said in his evidence to the court. "At this meeting I do remember calling Mr Gorman 'Billy Big Bollocks'." Gorman threatened to quit the company unless he was granted his share options. Wilkinson told the court that Gorman was behaving like a "spoilt child" and that if he wanted to leave, that was fine with him. Afterwards, Gorman is said to have been found in tears in his office. Wood's written submissions also give colourful accounts of encounters with both Gorman and Hunter in the south of France, and he repeatedly accused both men of being drunk. He told the court of encounters in the Nicky Beach Bar in St Tropez. He also claimed Hunter raised the issue of the Gadget Shop buying Birthdays in the toilets of a nightclub in Monaco after the Grand Prix race of June 1, 2003. Wood, who is "virtually teetotal", alleged in his submissions that Hunter was "clearly very drunk" and slurring his words. Hunter is also alleged to have discussed the continuing disagreement over Gorman's share bonuses. Lord Grabiner put it to Wood in court that this was a "pack of lies", adding: "Your testimony of that conversation in the lavatory is a lie. You have devised it purely to embarrass Mr Hunter in public." Wood also claimed in his witness statements that billionaire property investor Simon Reuben had advised against doing business with Tom Hunter. Reuben gave evidence to the court to rebut those allegations. When he appeared in the witness box, Michael Crystal, acting for Wood and Wilkinson, did not attempt to argue with Reuben's restated version of events. Furthermore, Reuben told the court that he did not like dealing with Jon Wood because he was never sure when the UBS director was acting in a personal capacity and when he was acting for his employer. By July 2003 the prospect of Birthdays being acquired was in the open. Wood and Wilkinson claim this was always going to be a Gadget Shop deal. Hunter claims it was a "two-track" process and there was always the option to buy it either through the Gadget Shop or West Coast Capital. Gorman told the court that the lines were "very blurred" between the two. At a crunch meeting on August 20, 2003, Hunter offered Wood and Wilkinson 25% of the enlarged Birthdays and Gadget Shop group in exchange for their 40% holding in the Gadget Shop. There were around 50 Gadget Shop stores and roughly 500 Birthdays stores. Wood and Wilkinson claim that Hunter said the combined business would be worth between £200m and £300m, so they were being given the chance to get a more valuable holding in a bigger company without putting in fresh capital. Wood and Wilkinson told the court they were furious about the prospect of their shares being diluted further and insisted they had rights to invest more money in the company to maintain their stake. No agreement could be reached. Hunter then pressed ahead with the acquisition of Birthdays through West Coast Capital, to meet an August 29 deadline imposed by Rothschilds, which was handling the auction for the company. Over the next few months, legal proceedings began to emerge. Meanwhile, the trading performance of both Birthdays and the Gadget Shop deteriorated. By February 2004, the board of the Gadget Shop agreed to begin to merge Birthdays at an operational level, shifting the headquarters to Glasgow. Senior members of staff at the Gadget Shop were working between the two businesses, in spite of the different shareholder groups involved - although this was all agreed at board meetings. The parties' lawyers, Hammonds and McGrigors, were both putting forward settlement proposals. The last offer from McGrigors, representing Hunter and Gorman, dated April 16, 2004, was that an independent valuer be brought in to value the Gadget Shop as at August 29, 2003, the date the Birthdays deal took place. But this was rejected. Trading problems at both chains continued. Birthd
ays was sold for £46.4m to Clinton Cards in September 2004, at a combined loss to West Coast Capital and Gorman of £4.75m. Potential buyers for the Gadget Shop were being approached around the same time. One offer came from Hamleys, the famous toy store owned by another of Hunter's associates, Icelandic retail group Baugur. After another dire Christmas, Game Group offered £1m in January 2005, on the condition that the litigation be dropped. By March the litigation threat had driven it away. The Gadget Shop went into administration on March 14 of this year, leaving its 700 employees in the lurch. Shortly afterwards, the legal dispute became public. After Gorman's testimony last Wednesday, all that remains now is for the closing statements from the respective counsels to be heard. After the saga is over, it seems unlikely that any of the parties concerned will be showered in glory.
Labels: Millionaires court