The 69-year old head of Capital Shopping Centres tells Giles Barrie he is the man to rescue the quoted property sector. But is he really the ‘Messiah’, or is he simply maximising his own interests?
Donald Gordon opened the post the morning we met, read the offer of 10 large stakes in 10 major property firms and added it to his file.

Since revealing that Liberty International, the £3.4bn Capital-Shopping-Centres-to-life-insurance group he chairs, had bought a near-3% stake in Land Securities in late March, the 69-year-old entrepreneur has had several approaches.

He declines to comment, but City sources say he has met the management of LandSecs, added to his holdings in five other property companies and developed his strategy considerably since making his initial splash.

Consolidation

So, is the South African the man to finally bring about consolidation at the top of the quoted property sector, or is he – as head of CSC – just desperate to leave a healthy legacy by transforming a firm that has run out of steam?

Analysts and rival property chiefs are sceptical. One claims the whole adventure has been a mistake that started with Gordon buying what he thought were cheap shares and then being hailed as some kind of ‘Messiah’.

‘He’s at the end of his career and he would like to make waves. He spent £100m, got a terrific press and now thinks he can walk on water. I don’t think he’s got a game plan– it’s all garbage.’

But Gordon himself is still supremely confident, and says he is so driven by his goal to consolidate the industry that he is not motivated by money.

Depsite his age, Gordon says his mind is as sharp as ever, that he has bought more companies than any UK rival and is now devoting 80% of his time to the exercise.

‘We are coming to certain conclusions on the best way of tackling this,’ he says. ‘Every transaction will take a different form. We have been approached by most of the majors to do some sort of merger or God knows what, with regard to our position of owning seven of the UK’s top 20 shopping centres.

‘It could be a move to merge several companies; some we are being encouraged to take over, others to break up,’ he adds.

City speculation over Gordon’s attentions has focussed on LandSecs, British Land, Hammerson and MEPC. It has emerged that LandSecs actually approached Gordon first over a deal and one option being discussed is actually a takeover by LandSecs of Capital Shopping Centres.

This would see LandSecs paying in its own shares for a company seen as having a higher quality of overall assets and leaving Liberty as its biggest shareholder. Other developers scoff at this idea, arguing that as LandSecs has been buying in its own shares it is unlikely to issue more for a deal.

Another option under discussion is for LandSecs to sell CSC its shopping centres, which account for £2-2.25bn of its £8bn portfolio.

Another less spectacular option under review is for LandSecs and CSC to form an alliance to work together to improve adjoining interests.

There have already been talks about linking up for an initiative to improve the Thurrock Lakeside area, where LandSecs owns the 32,500 sq m (350,000 sq ft) retail park near CSC’s giant shopping centre.

The firms have also discussed adjoining interests in Cardiff and Newcastle, and LandSecs chief executive Ian Henderson is known to favour alliances after forming its Birmingham Bull Ring venture with Hammerson.

But City sources say a deal with LandSecs is not top of Gordon’s list, and speculation has also focused on MEPC and Hammerson.

It is understood that no holding or unusual volume in share trading has been detected at Hammerson, and MEPC chairman Sir John Egan is a fan of consolidation (feature, 4 Feb). Gordon is thought to rate CSC’s management more highly than both, and either could see some action.

He’s at the end of his career and he would like to make waves. He spent £100m, got a terrific press and now thinks he can walk on water

City Analyst

Ritblat link-up?

British Land is another interesting case, because Gordon has not bought any shares in the company. Analysts believe this is either because he is unsure about the firm’s complex finances or because he is planning an audacious link-up with the two firms working together on a deal.

This would see CSC, with its Meadowhall-to-Lakeside portfolio linked up with British Land’s offices and supermarkets providing strength to bid for other companies.

Gordon says: ‘We are talking about increasing our consortium strength, and gradually we are building up our allies. We want to be clear of our muscle. Half the companies in the market are open to merging. People are pretty depressed in the industry. If they get an offer they will be rather amenable to it. Some of them are prepared to throw their whole lot in with us.’

‘I think you are going to need one giant property company. The British are seen as a nation of shopkeepers, but they are also property people. How has property diminished so much as a business?

‘If all the companies were even recognised by the stock market it would be different, but it’s not. I’d like to build a very special institution with the highest quality of ethics, standards and management,’ he says.

And if other property companies will not co-operate, hostile bids have not been ruled out, although Gordon says that while he could borrow up to £1.5bn and still remain relatively ungeared, he is innately ‘very cautious’. ‘I like to sleep at night,’ he says.

No deal

However, potential partner and British Land chairman John Ritblat is opposed to the idea of acquisitions that can involve paying the wrong price, inheriting litigation and paying off senior management.

Although under pressure to do something – anything – to boost British Land’s share price since LandSecs announced its buyback, Ritblat is understood to be encouraged by the recent comeback in all ‘old economy’ shares. And this relieves the pressure to do a deal with Gordon.

This revival in itself provides most people’s explanation for Gordon’s share-buying spree.

He admits that if all else fails he could sell his LandSec stake at a £15m profit [at the time of our interview] because others have since spotted the huge discount to net asset value at which the shares were trading. 

He says he sees a future for Liberty Life as having a string of profitable investments, all additional to its normal earnings, and it is on this point that Gordon and his critics converge.

Analysts point out that CSC was beaten by the Prudential to buying Manchester’s Arndale Centre, by Hammerson to West Quay in Southampton and recently to giant schemes in Nottingham and Liverpool.

Add to that fears about the internet’s impact on retailing in general and you get a company that looks like it is heading nowhere, although it does have plans for a large project in Oxford and an extension to the MetroCentre.

To appease analysts plaguing it with enquiries about on-line trading, CSC directors have drawn up an internet strategy that involves providing more bigger outlets at its centres at the expense of the smaller, weaker outlets.

LandSecs alliance

Extensive improvements at Lakeside will be a testing ground for this, although Gordon believes fears over the internet are overhyped and uses the often-repeated theory that shoppers like to ‘touch and feel’ their goods.

I’m coming up for 70 and in the next two years I’d like to make a major contribution to rationalising the UK property industry. I don’t do it for the money

Donald Gordon

And, he says, ‘With planning restrictions as they are, our portfolio cannot be replicated. You will still need shopping centres whatever happens.’

Another criticism of Gordon is that far from consolidating other people’s businesses he should consolidate his own, with Liberty itself a complex tangle of affairs, owning 75% of CSC and 100% of Capital & Counties.

Gordon says: ‘We are looking at it. The different companies do serve a separate purpose, but it’s not any priority. It is difficult in terms of minority shareholders but buying them out really doesn’t serve a purpose.’

And potential targets are also wary about whether consolidation in the property sector actually has any benefits.

Great Portland Estates joint managing director Peter Shaw says: ‘I can see that to make an impact on the ‘footsie’ it would be a good idea to create a bigger property company but would it really work?

‘In terms of market capitalisation LandSecs [£4.1bn] is fairly insignificant and, even if it doubled in size, it would still be small compared even to a relative newcomer like Colt Telecom [at £19bn].

‘In fact, Colt would be bigger than all the property companies put together and has still never made a profit. I admire Capital Shopping Centres but I see them as a specialist rather than as a diversified company.’

Slough Estates chairman Sir Nigel Mobbs says of Gordon: ‘If he has bought shares in Slough it hasn’t come to my notice yet, but we see this every five or six years.

‘Someone says they want to consolidate the sector, there is a flurry and all that happens is that more new companies are set up. Egos get in the way, portfolios aren’t always compatible and anyway, to do anything serious he [Gordon] would have to be buying much bigger stakes than he has.’

Too meticulous

In response to this, Gordon says he is prepared to keep increasing his holdings indefinitely, still attracted by the ‘quite illogical’ discounts to NAV and because the public want to get their money out of property.

He is in no hurry, and talks of his ‘tremendous patience’ and believes his biggest weakness is that he is ‘probably too meticulous’. A book by Simon Wiesenthal, who spent decades tracking down Nazis after the war, is placed prominently on the bookshelf in his traditionally decorated Victoria office.

His strength, he says, is attention to detail and a love of doing things differently. ‘I’ve never read a life insurance text book in my life but I think I hold a world record for being chairman of a life company for 42 years.’

Gordon does not consider himself a property expert, although he says he can spot if his development team is going wrong.

The difference between Gordon’s stated ambitions and what the market says about him is stark and few say he has the financial firepower or ingenuity to merge or take over a series of sleeping giants. But he is equally unimpressed with what he sees as the ‘disappointing’ UK property sector. And while many property executives are motivated by self-preservation Gordon is keen to consolidate the property sector because corporate activity is his hobby.

‘It’s what I like to do,’ he says. ‘I’m coming up for 70 and in the next two years I’d like to make a major contribution to rationalising the UK property industry. I don’t do it for the money.’

Gordon is playing a cunning game, aimed at protecting Capital Shopping Centres’ own interests as much as anything else. The more he talks about bidding for the companies he has invested in, the more their shares rise.

Donald Gordon at a glance

  • Founder chairman of insurance group Liberty Life from 195; by the 1970s the group had developed special consumer products with income from investments in property
  • Liberty Life’s assets, including subsidiaries and associates which it controlled or in which it was the major shareholder as well as funds under management, were worth £32bn by the end of 1998
  • Sold his controlling interest in Liberty Life with effect from 30 June 1999 and stepped down as chairman. Now honorary president, but remains chairman of Liberty International, which includes 74% stake in Capital Shopping Centres and a 100% stake in Capital & Counties. He is chairman of both property companies
  • Stepped down as deputy chairman of Standard Bank Investment Corporation and South African Breweries in June 1999. On the London board of Guardian Royal Exchange from 1971-1994
  • On South African cricket’s corruption scandal: ‘I know [disgraced captain] Hansie Cronje well. He’s such a nice, clean-living youngster. He could have been indiscreet or stupid, and if this is true it would be horrific. It would be like boxing, which I think is completely fixed’
  • On the crisis in Zimbabwe: ‘I’m a little distressed. Apart from the people who are in danger, the big issue for me is the impact it will have on South Africa’