Sir Tom Farmer, the ebullient chairman and chief executive of Kwik-Fit, spent most of last week reassuring the media that Ford’s surprise £1 billion acquisition of the multinational tyres, exhausts and brakes chain, which he founded in Edinburgh in 1971, would be good for the company, good for its 9,500 employees, and good for Scotland.
“We see this as a great thing to happen to Kwik-Fit, we really do. It is something that gives us a lot of excitement,” said Farmer, interviewed in his west Edinburgh head office.
Ford has given assurances that there will be no redundancies and that the company’s head office will remain in Edinburgh. Ford has also promised that it will pursue a rapid international roll-out of the Kwik-Fit brand, notably in the Far East.
But, hardened by the loss of other Scottish corporates since the 1980s — including the likes of Distillers Company Limited, Coats Patons, William Low , General Accident and Stakis — some observers take a more jaundiced view. They have reasons for questioning Ford’s long-term intentions.
Both Guinness and Viyella made similar promises when they respectively snapped up DCL and Coats. But, 13 years on, where are the DCL and Coats’ HQs? Once the mergers were approved their true purpose became more apparent — rationalisation. Decision-making ebbed away from Scotland to London fairly rapidly thereafter.
Kwik-Fit deal is positive for Scotland, says Sir Tom
Speaking in his impressive corner office in the fast-fit company’s Costorphine Road headquarters, Farmer insists history is not about to repeat itself with Kwik-Fit. “Ford has said publicly that the headquarters will be in Edinburgh,” he said. “I’m confident we’re dealing with an organisation that can be trusted.”
Farmer believes the acquisition, from which he and his family stand to gain around £78 million given their stake in the business, is a sign of hope for Scotland’s future. “It demonstrates quite clearly that a multinational company has identified a Scottish company as being the best in the world, and that it is prepared to come over and make a £1bn investment here and give the commitment that the headquarters will be here.
“It gives young people a doorway into a multinational company and that’s got to be good for Scotland.” When Continental, the German tyre manufacturer, acquired a minority 10% stake in Kwik-Fit in 1989, effectively putting the company in play, Farmer says it was clear that that approach was not in his firm’s interests. The German company’s primary intention was to use Kwik-Fit as a distribution channel for its tyres.
“It just wasn’t in the interests of the Kwik-Fit people, customers or shareholders.”
Farmer is convinced the situation is different this time. Having reassured themselves that the Ford deal would be beneficial to both customers and employees, Farmer and his nine-strong board of directors asked the investment banking arm of HSBC, the firm’s professional advisers, to check whether the offer price was also in shareholders’ interests. Once HSBC had come back with a positive response, Farmer claims he had little choice other than to recommend the offer.
“I believe that for moral reasons,” he said. “This is a public company and it was an offer we felt was very, very interesting.”
At 22 times 1998/99 earnings, analysts agree that Ford’s offer price of 560p per share is “full”, though Jim Wood-Smith, a director at stockbrokers Greig Middleton, claims it is “not necessarily top dollar”.
Kwik Fit shares, trading at 421.5p on April 9, had jumped to 532.5p by Friday afternoon. And the Financial Times’ Lex column said: “Sir Tom has done his shareholders proud.”
Also, the timing was good.
Farmer, 58, has no obvious successor and there is some evidence that the company had met a barrier to growth and was starting to fall out of favour in the City.
It’s not just external shareholders and Farmer and family who stand to benefit from the 32.9% premium over the pre-bid share price. 2,500 of Kwik-Fit’s employees who have achieved certain performance targets have also been given shares in the company. These lucky individuals will split £1.3m between them.
Rather than focus on the personalities, Farmer prefers to present Ford’s approach as a corporate one. He says the Detroit-based multinational wanted to buy Kwik-Fit, which it has said is perhaps the best operation of its type in the world, as part of a plan of vertical integration.
“It’s part of our overall strategy of going downstream in the value chain,” explains Mike Jordon, vice-president of Ford‘s customer services division. “We searched around the world for a good model on which to build. Their model is outstanding. Their real strength is in the area of customer relationships — we have got a lot of things to learn from them.”
The world’s second-largest motor company, whose car brands today include Ford, Lincoln, Mercury, Jaguar, Land Rover, Range Rover, Volvo, Aston Martin and Mazda, faces an uphill struggle to metamorphose into a customer-friendly organisation.
In the UK, Ford was until recently over-dependent on the fleet market, neglecting the needs of private motorists. Now the company is playing catch up.
But drivers of older cars still tend to regard franchised dealers as rip-off merchants which offer worse service than specialist outfits such as Kwik-Fit.
“Ford and other car manufacturers want to maintain their relationship with the car and the driver from showroom to scrapyard,” explained Farmer. “Once a car is over four years old it is lost to the manufacturers. We have the desire to create facilities to look after cars from the showroom to the scrapyard. These include servicing, parts, insurance and more.”
He dismisses suggestions that Ford will force the company to adopt certain management practices or processes. Instead, he prides himself on the notion that the giant of Dearborn, Michigan, has much to learn from Kwik-Fit.
“We’ve got a better way of doing things, which is what they were looking for. They are saying there are things that Kwik-Fit does that will bring value to them.”
If Farmer ever does gets bored of running tyre and exhaust depots, or starts to find being a Ford employee tiresome, he is unlikely to fully retire.
When he tried to do so in the early 1970s and emigrated to San Francisco, he drove his wife, Anne, to distraction. Instead, it seems likely he would step up his charitable work. He might even consider going into politics.
A devout Roman Catholic, Farmer strongly believes companies should do their bit for communities. He believes one of the first tasks of the new Scottish parliament should be to give a leg up to the underprivileged.
“There are 80% of the population doing alright and sharing in all the good things going on. But 20% never get the opportunity to be involved. I think this political change will enable a population of five million people to really improve the situation for that 20%.
“The man that taught me that was Sir Hector Laing [now Lord Laing], former chairman of United Biscuits. First, you’ve got responsibilities and, secondly, it makes good business sense. If you’ve got 20% of the population needing support, it’s a real drain.”
Magnanimity and an alertness to the needs of the wider community is one lesson Farmer learned from the late Gordon Gray, former cardinal of Scotland, who he describes as one of his mentors.
“His view on life, and his view on how you should operate things, had all the great business principles. If Cardinal Gray had gone into the tyres and exhausts business, he would have beaten us right, left and centre!”
“In the 1970s and 1980s, you had companies that grew fast and then disappeared because entrepreneurship got mixed up with greed. The companies that collapsed were always ones with no ethics.”
Copyright SMG Sunday Newspapers Ltd 1999
This article was published in the Sunday Herald on 18 April 1999