What You See is What You Get

by Sugar, Alan

  When I finally got round to reviewing what had gone on, I looked into the financial arrangements Bob had agreed to and discovered that some of them were outrageous. On top of this, he had awarded the American company Audiovox exclusivity on selling our phones in Spain. But the biggest issue was that, in trying to act as CEO and businessman, Bob had taken his eye off engineering and production – the bit he was best at. The first GSM phone designed under his regime had a serious mechanical fault whereby the battery would lose contact while clipped on the back. The frustrating thing was that the electronics and software that went into this phone (including all the GSM technology) made up 99.9 per cent of the rocket science involved; the stupid plastic cabinet was just the other incidental 0.1 per cent. We fell down on the simple stuff – on mechanical design. With our wealth of knowledge, we should have been able to deal with this with our eyes shut, but it completely screwed us. This brought about a series of claims from people like Mercury, E-Plus and Audiovox.

  You see, a customer doesn’t care why a phone doesn’t work. They are not interested in hearing that 99.9 per cent of what you sold them is technically brilliant – it’s the bloody 0.1 per cent they remember.

  Samson, Beckett and the Amstrad board were encouraging me to do something about the dire situation at Dancall. Some of the claims being made by the customers had serious financial ramifications because, in desperation, Bob had uncommercially given away the shop. It was a sad day when I went to Denmark to relieve Bob of his duties as chief executive there. I still wanted him to remain with the company, to be my consultant as far as technical matters were concerned, a compromise that was reluctantly accepted by Samson and Beckett.

  Bob accepted this sideways demotion, recognising that I was struggling personally with the decision. He knew that as he was a long-term colleague who had helped me amass my fortune, I didn’t want to sling him out completely. However, Bob had his pride and dignity and in January 1997 he left once again to join Gulu Lalvani, who had been following the Amstrad/Dancall deal. I don’t know exactly what Bob was expected to do – I suspect it was to try to put Gulu in the mobile phone business.

  Gulu had phoned me on one occasion during our acquisition of Dancall, to see if he could edge his way in. He’d found out the transaction was going on – albeit too late. I dismissed his probing, simply telling him he’d missed out and there was nothing in this for him.

  At Dancall, there were now serious problems of overstock of component inventory. The customers had stopped buying because of the technical faults and Guppy Dhariwal and I had to dive into the situation. We rearranged the management there for day-to-day operations and put the factory manager, Peter Hindrop, in charge as managing director.

  I knew I’d done a good deal acquiring Dancall; I was just angry I’d let it run riot. I can’t emphasise enough how advanced this little company was compared to some of the big boys. I knew we could never compete long-term in the mobile phone market – we could never afford the marketing budgets or have the economy of scale to make millions of phones per month – thus I always had it in mind to sell Dancall to a big player.

  However, this latest setback got me thinking that maybe the disposal of Amstrad as a whole would be the best thing for me, to finally sever my relationship with electronics, as nothing seemed to be going right at the time and we’d lost the computer market. Psion, who were enjoying exceptional success with their Organiser, seemed like a good match. There was a certain synergy in that Amstrad had a range of technologies similar to those Psion was telling its shareholders they were going to pursue – particularly mobile phone technology. I had once offered Psion the opportunity to take over the intellectual property rights of the phase-2 PenPad device we’d canned, which they’d declined. Now I got in touch again with Dr David Potter, the chairman and boss, to discuss the possibility of Psion, also a public company, acquiring Amstrad. I explained that in addition to our technology, there was a large cash pile inside Amstrad, as well as a possible windfall pending the result of the litigation with Seagate.

  Potter was very interested and we had several meetings to discuss it. Coincidentally, a major shareholder of Psion, Mr Danny Fiszman, was also a major shareholder of Arsenal and knew me quite well through football channels. The proposition was: I would accept a total takeover by Psion (a non-cash takeover, whereby Amstrad shareholders would receive a proportional amount of shares in Psion in exchange for their shares in Amstrad). I’d keep the proportion of Psion shares I got from this transaction and not sell them, in the hope that the larger company going forward would grow, based upon the combined technical resources of both organisations.

  Regrettably, somebody leaked these secret discussions to the media and the Daily Mail blew the story. Potter was furious, originally blaming me for the leak. It had nothing at all to do with me – I was fully aware of the necessity to keep things quiet and was insulted that he was making accusations like this. As a result, the Stock Exchange asked Psion and Amstrad what was going on and Psion had to put out a statement saying that they were in preliminary discussions with Amstrad, but as due diligence had not taken place, they were in no position to make an offer.

  Next, a meeting was called at the headquarters of Psion’s merchant bank. Margaret Mountford and Robert Leitao of Rothschild, Amstrad’s merchant bank, joined me there to discuss terms for a heads of agreement draft. The meeting went on for hours and hours, with Psion’s people banged up in one room while we were stuck in another. Psion’s advisers put forward some ridiculous requests and Margaret advised me that in no way should I accept them. Eventually, I’d had enough. I knocked on Psion’s door and told them the requests they were making were totally out of the question and on that basis the deal was off. This came as a bit of a shock to the Psion people, who turned out to be bluffing. They backed down immediately and changed the proposals there and then. A formal announcement was sent to the market.

  I found Potter to be a very cautious and distrusting person. Even after carrying out due diligence, I think this distrust led him to conclude that I was trying to palm him off with some white elephant. He was so wrong. I was simply trying to relinquish the reins of Amstrad and put it into another company. I just wanted to sit back and let someone else run it, so the responsibility wasn’t on my shoulders alone. But at the eleventh hour, Psion got cold feet and announced they were pulling out of the deal.

  The bad news came on a Friday, leaving me quite depressed and demoralised. One of the negative effects of Ann having no interest in or knowledge of my business was that at times like this, she never understood how gutted I felt. We were out for dinner with friends the following night and I was in a deep sulk and very poor company. If ever there was a time for her to leave me alone, it was then. Instead, she gave me a bollocking at the table for not being the life and soul of the party.

  However, I pulled myself together and started to focus again on Dancall, where we were seeing a new wave of enthusiasm within the management. After Bob’s departure, I read the staff the riot act. I told them we were shutting down any projects on pagers and DECT, explaining the commercial rationale. There were some disappointed engineers who saw this as abandoning their first love, but I reminded them, ‘I am the boss and that’s it. We’re going to redeploy you where we can make some money. This is not a learning institution or a charity; this is a business. Let me remind you how you got into trouble in the past – by not focusing on where the revenue’s coming from.’

  We had recruited the services of a super-salesman who specialised in Eastern Bloc countries such as Romania, Poland and Czechoslovakia, which had been left behind as far as the big boys like Nokia, Ericsson and Motorola were concerned. These countries’ national telecom organisations all wanted to be in the mobile phone business. We got lots of orders from this market; we pretty much had it to ourselves. So while Western Europe was not really interested in Dancall, Eastern Europe was buying as many phones as it could lay its hands on.

  I suggested we start
cranking the prices up, so we could get ourselves into a profit situation. When it came to negotiating with parts vendors, Dancall was a minnow, but we used the aggressive Amstrad ways of dealing with the suppliers and driving their prices down. The likes of Nokia and Motorola were making millions of mobiles per month; we were making 50,000. Nevertheless, we did well on parts pricing, considering this David and Goliath scenario.

  I started visiting Dancall at least once a week, leaving Chigwell at 5 a.m., taking the private jet from Stansted at 6 a.m. and landing in Denmark at 8.30 a.m. local time. I’d be in the factory at 9 a.m. when everyone was turning up for work. At 4 p.m. I would leave for the airport to head home.

  On my visits, I spent a lot of time with the engineering people, discussing the changing trends in the mobile market. Again, I don’t want to get too technical, but I need to explain that digital mobile transmission in those days used one of two standards: the GSM system or the PCN system. They both did the same thing as far as the end-user was concerned, but each required a different type of phone. To complicate matters further, the American market had a GSM system similar to Europe’s but, typical of the Americans, their system worked on a different frequency band – 1,900 MHz (compared to Europe’s 1,800 MHz).

  In one of the weekly meetings with Dancall’s engineering team, I decided we should develop what I called a ‘World Phone’. The product would be dual-band and dual-standard – a phone you could use in America or Europe, a phone that could roam automatically between the PCN and GSM networks. Obviously it wasn’t a new idea – everyone was thinking this way – but no one had yet produced it in an elegant and commercial package. Dancall was very excited at this prospect and put together a team of their best engineers to pull it off. (By the way, just as a bit of trivia, some of Dancall’s best software engineers were women.) I was keen to demonstrate this dual-band and dual-standard phone at the Hanover Fair in March 1997, because if I were to sell Dancall, now would be the time. I wanted to prove that Dancall had advanced technology in order to make it attractive to any serious big buyer.

  With some of my enthusiasm rekindled, I contacted Robert Leitao of Rothschild and suggested we look for companies to buy Dancall. It seemed to me there was a one-time opportunity to offer the company to some giant organisation who wanted to catapult themselves into advanced mobile technology, rather than greenfield it themselves. The German giant Siemens was one such organisation and I had already contacted them and pulled off a deal for Dancall to make a Siemens-branded dual-band phone. It was quite amazing to see that Siemens, this giant organisation, was so far behind Dancall technologically that its own factories couldn’t produce this.

  Rothschild put together a document to target potential buyers, inviting them to make further enquiries with a view to an offer. To our surprise, a lot of companies responded. Siemens contacted me directly, saying it would be very interested, and Rothschild was contacted by Sony, Bosch and a few others. I agreed to meet Mr Morita, the son of the founder of Sony, in Aalborg and gave him a guided tour around the factory, so he could see it for himself and I did the same with some people from Bosch. Meanwhile, the boss of Siemens called me to ask if I could give him an indication of how much money we wanted for Dancall. Before answering, I consulted with Robert Leitao.

  If you think investment bankers know what they’re talking about, here’s an interesting example which proves they have no idea whatsoever. Robert, a very nice fellow, had tried to assist me in the Psion takeover and got to know certain things about Dancall. But when it came to putting a valuation on it, he just kind of looked at me, as if to invite me to come up with a figure. For no reason other than complete and utter bravado, I blurted out, ‘This company will not be sold by Amstrad unless we are offered at least a hundred and fifty million US dollars.’

  I just plucked the figure out of mid-air. And here’s the bit that’ll make you laugh – Robert said to me, ‘One hundred and fifty million is reasonable, very reasonable. That’s the figure we should go forward with.’

  So much for all the investment banking advice! We’d only paid £6m for Dancall and had injected a further £10m, so our outlay over the two years we’d owned it was £16m. Between you and me, if someone had offered me £35m there and then, I’d have bitten their hand off. In fact, if Robert had burst out laughing and said, ‘You must be joking, Alan, it’s not worth more than thirty million,’ I’d have said, ‘Okay.’ But having seen Robert’s reaction, I thought, ‘What the hell, there’s nothing to lose, go for $150m.’

  I told the guy from Siemens that if he thought he was going to steal the company, he’d better think again, as other parties were interested. Without mentioning their names, I told him they were substantial international companies and I was thinking in terms of $150m. Siemens pulled out at that price level, but Bosch and Sony really had the hots for this transaction. Sony had limited activity in mobile phones, while Bosch, a major German manufacturer, was heavily entrenched in the fixed-line telephone business. Their activity in mobiles was limited to buying in Motorola mobile phones and rebranding them Bosch.

  There are certain events I will never forget from my electronics days. One of them was the time we announced the dual-band phone at the Hanover Fair. Companies like Ericsson, Nokia and Motorola had massive exhibition stands – they’d spent a fortune at the fair, with their staff all dressed up in matching coloured uniforms, but the crowd was flocking to the Dancall stand. It was inundated with people, even from Ericsson and Nokia, all gathered around our dual-band phone display. Not only had we announced it, we had proved it worked – we were demonstrating it there and then, showing how the phone automatically flipped between PCN and GSM without any physical switching. It was a revelation.

  So often at exhibitions, companies make big announcements about new items which just turn out to be their intentions – we call it ‘vapourware’. This was not one of those occasions – word got round the show very quickly that we’d actually done it.

  The fair’s daily magazine placed a big article on the front page, highlighting our dual-band phone as one of the major revelations of the show. This encouraged Sony and Bosch even more. The chief executive of Bosch called for a meeting with me on our stand at Hanover. I told him we were going to send out a final tender document and by 24 March 1997, they would have their last opportunity to put their offer in. He asked me to ‘cut to the chase’, as the Americans (not the Germans) would say, and give him a definitive price, so I told him that, whatever happened, I wasn’t selling this company for less than $150m and that was all I was prepared to say.

  With both Sony and Bosch on the hook, it was time to play one off against the other. But before they would make an offer they had to do some financial checking. We didn’t want them going into Dancall, where tongues would wag and the staff would be confused by the rumours flying around left, right and centre, so we set up a data room at Herbert Smith with boxes and boxes of documents on the company’s financial and technical affairs. Sony and Bosch were both informed they were in a race, so to speak, and that their tenders had to be in by 24 March, which just happened to be my birthday.

  In 1997 it was a special birthday – my fiftieth – and Ann and Nick Hewer had arranged a real slap-up party for me, which would take place on 23 March. Ann tried to keep the party secret from me, but unfortunately it wasn’t a surprise because Nick had written to Margaret Thatcher to see if she’d be prepared to come along and her staff had mistakenly replied to my home address. On opening the mail one morning, I stumbled across a letter from Margaret Thatcher wishing me a happy fiftieth birthday and apologising for being unable to attend.

  I had a dilemma as to whether or not I should tell Ann that I knew. In the end, I quickly passed her the letter and said, ‘I think this is for you – I accidentally opened it. I haven’t read it, but I think it’s for you.’ Nothing more was said, but she knew the surprise was blown. However, she did manage to keep a couple of other major secrets from me.

  The party was
held at Nick’s gentlemen’s club, the Reform Club in Pall Mall, and as it got underway, I could see the extent of all the trouble that Ann and Nick had gone to. There were some surprise guests, including Tony Blair, the leader of the New Labour Party, our friends Jeremy Beadle, Maureen Lipman and Tommy Steele, and even Nick Lightowler from Comet. But the biggest surprise of all was yet to come.

  Cooped up in a side room was a bunch of people I had lost touch with. Ann and my daughter Louise had got together all my old friends – Geoff Salt, Steve Pomeroy, Tony Kaye and Malcolm Cross, together with their respective wives. I hadn’t seen Geoff, Tony or Steve for nearly thirty years and Malcolm for twenty years. I was dumbstruck. It was an amazing surprise, but still not the biggest of the evening.

  At the end of dinner, Michael Aspel turned up, presented me with a big red book and said Alan Sugar, this is your life!’ Nick had arranged for Michael Aspel to put on a pseudo This is Your Life show. Unbeknown to me, a stage was being set downstairs and the guests were invited to leave the dining room and assemble there. People came on the stage to do the famous This is Your Life bit and video messages were played from Rupert Murdoch, Jürgen Klinsmann and Bill Gates. Then out on the stage came Gerry Francis, Tommy Steele, Bill Kenwright the impresario and chairman of Everton, and David Dein from the arch-enemy Arsenal. It was an unbelievable surprise. I was feeling a bit embarrassed sitting through all of this. Loads of people were there, including Stanley Kalms and people from work like Bob Watkins. It was a great night.

  The next day, my birthday, we flew off to Marbella, where I’d arranged for my boat to be parked at Puerto Banus. We were going to spend a week there over the forthcoming bank holiday. Early in the afternoon, I received a call from Robert Leitao telling me the tenders had arrived at midday. Bosch had offered $150m. Sony had also put in an offer of $150m, but it was a Mickey Mouse offer – they had done some jiggery-pokery, messing with parts of the balance sheet to make the headline figure look good, but effectively it equated to $50m. The massive gap between the two bids made this a dangerous situation. Obviously I wanted to accept the Bosch offer, but there was still lots more work to do before we got to the contract stage. By now, Sony and Bosch both knew they were fighting against each other. If it leaked out to Bosch that their opponent (and the only other serious player) was offering $100m less than they were, they’d certainly revise their offer.