The Warburgs

by Ron Chernow

  In 1957 a member bank came up for sale for the first time in fifty years. Although the least prestigious member, Seligman Brothers provided the entrance ticket Siegmund wanted. Originally from Darmstadt, Germany, the Seligmans had emigrated to America, founded a distinguished house on Wall Street, then planted family partnerships in London and Paris. While not practicing Jews, they were socially prominent and on good terms with many substantial Jewish families. When two Seligman senior partners died in the 1950s, their firm was strapped for cash and managerial talent and needed to merge to survive.

  As Siegmund negotiated with the Seligmans, it wasn’t crystal-clear that S. G. Warburg would inherit its Accepting Houses cachet after a merger. So Geoffrey Seligman went to secure the regal blessing of C. F. Cobbold, the Bank of England governor, who nodded and said approvingly of Siegmund, “No rough elbows.” Cobbold actually thought Siegmund something of an upstart, but respected him. Siegmund insisted that the merged firm bear his name. After hesitating, the Seligmans agreed that the letterhead would read, “S. G. Warburg & Company (incorporating Seligman Brothers).” This merger with a member of the venerable Accepting Houses Committee was an astonishing milestone for a firm launched just a decade before.

  When the merger took place in May 1957, S. G. Warburg employed about eighty people and Seligman forty people. In retrospect, it seems the Seligmans were swallowed by Warburgs, not merged, and it was never an easy fit. Siegmund would have preferred Seligman Brothers without the Seligmans, but he needed them to retain their clients. Reginald Seligman was a clubman who liked to ski and fox hunt and was destined to clash with Siegmund. He left after a brief period. The funny, easygoing Spencer Seligman stayed but never ascended into the top ranks.

  It was Cambridge-educated Geoffrey Seligman—formal, urbane—who experienced the greatest success and the keenest frustration. At first, Siegmund treated him courteously and placed him in an office with the aristocratic Lord Bridgeman so he would feel at home. But while Siegmund adorned Geoffrey with suitably high titles, he never admitted him to the inner sanctum of uncles. Seligman worked exceptionally hard, bringing in lucrative British clients such as Maxwell Joseph of Grand Metropolitan. In America, where he had Seligman and Lewisohn relatives, Geoffrey tended to such major clients as Textron and Cummins Engine. And he deferred to Siegmund. Yet Siegmund lorded it over Geoffrey, lest anyone think Seligmans had taken over Warburgs. Many associates suspect that Geoffrey expected far more from the merger and that the outcome must have quietly rankled. “Siegmund was always very hard on Geoffrey Seligman,” Dr. Goldman confirmed. “He thought he was too social and went to too many parties.”16

  Once his bank absorbed Seligman Brothers, Siegmund was in a unique position. He now had establishment credentials. But in the dull, provincial City of the 1950s, he again faced condescension from insiders as he had in Hamburg, or at Kuhn, Loeb. People snickered at S. G. Warburg & Co. as “bond-washers” who made small profits by turning over securities that went X-dividend. Siegmund was again cast in the role of arriviste and enfant terrible.

  For all his love of Britain, Siegmund deplored the tolerance of mediocrity he found in postwar London. Once, Siegmund and Eva entered a men’s shop and Siegmund asked for a particular article. When the sales clerk replied brightly that they were out of stock, Siegmund exploded and made a scene. “How can you say that with such pleasure?” He found such complacency in the bowler-hatted City, too. (Hardly anybody at Warburgs wore bowler hats or carried furled umbrellas.) He thought the British upper class feared excellence and exertion and took refuge in an effete, snobbish gentility, behaving with an arrogance it no longer merited.

  Siegmund’s entire career seemed but a preamble to the British Aluminium battle that rocked London in late 1958. This fight would spotlight his tactical daring, his scorn for the smug scions of inherited wealth, his courage to gamble all for the sake of ambition, and his refusal to compromise in matters of principle. At the end, the British Olympians would be forced to acknowledge him as a peer, a new Prince of the City.

  Siegmund entered the fray through Kuhn, Loeb, which advised American Metal Climax. In 1957, the American firm began to acquire shares in British Aluminium. When Siegmund went to plead for an American Metal Climax role, he was stiffly rebuffed by the British Aluminium (BA) board. So he knew he was dealing with an exclusive, inbred company that didn’t welcome intruders.

  Kuhn, Loeb also advised Reynolds Metals, which now decided to make a run at BA instead of American Metal Climax. Such a possibility was first broached in 1957 during a poolside talk in Jamaica between Sir William Wiseman—Siegmund’s Kuhn, Loeb mentor—and Richard Reynolds. At the time, BA’s stock was grossly undervalued, selling at a price about equal to the cost of a new plant it had built in Canada. Siegmund loved to shake up dozing firms. When Wiseman told him of Reynolds’s desire to control British Aluminium, he saw a potential business conquest on a scale that had thus far eluded him.17 Operating with astounding agility and stealth, Siegmund and Kuhn, Loeb amassed one million BA shares in New York and London before BA management noticed anything amiss. Even in the spring of 1958, the company still couldn’t identify the predator buying up its shares.

  Siegmund knew BA would create a brouhaha about a Yankee invasion of British industry. So he arranged a joint venture between Reynolds and a Midlands engineering group, Tube Investments Ltd. (TI), which was advised by Helbert Wagg. If they succeeded in buying British Aluminium, the British firm would have a 51 percent stake and the American firm a 49 percent stake. This should have laid the national-interest issue to rest, but it didn’t.

  In September 1958, Siegmund and Grunfeld worked out their strategy with Richard Reynolds and Sir Ivan Stedeford, the chairman of TI. Within weeks, they planned to inform British Aluminium that they controlled about 10 percent of its outstanding stock. Kuhn, Loeb; S. G. Warburg & Co.; and their friends held another 3 percent, while American Metal Climax retained its old 7 percent stake. Siegmund didn’t contemplate a hostile takeover and braced for perhaps a year or two of protracted talks. He thought a judicious mixture of force and tact, thrust and retreat, could secure board representation for Reynolds/TI by peaceful means.18 Instead, it would turn into the century’s bloodiest financial row in London and leave behind a trail of bruised feelings and recriminations for years.

  To understand this venomous fight, one must comprehend the sociology of the combatants. BA executives fancied themselves the industry’s aristocrats. The chairman, Lord Portal, was a decorated wartime chief of air staff. Managing director Geoffrey Cunliffe was son of a former Bank of England governor. When BA got wind of trouble, it summoned Olaf Hambro and Lord Kindersley of Lazard Brothers to mount a defense. Both bankers sat on the Court of the Bank of England and were close friends of Cobbold. For these gentlemen, Siegmund committed several mortal sins at once. He was an arriviste conducting a hostile takeover against a blue-ribbon British firm for an American client. Lord Portal repeatedly warned that the honor of Great Britain was threatened by the ragtag Reynolds rabble. In June 1958, he had begun to negotiate a deal with Alcoa, which he considered BA’s American counterpart. He sniffed at Reynolds Metals as an aggressive interloper, which reflected the way his City advisers perceived S. G. Warburg & Company.

  The Aluminium War was thus a clash between those born to power and those who felt themselves entitled to more power based on superior drive and intelligence. Siegmund’s main ally was the tall, silver-haired Lionel Fraser, the chairman of Helbert Wagg. A self-made man and butler’s son, he admired and identified with Siegmund and served as something of a mentor to him. “Lionel felt that anybody who had started from nothing and achieved eminence was on a par with him,” said his partner Michael Verey.19 Sir Ivan Stedeford of TI was also self-made. And Siegmund was the offspring of a great dynasty who had started over in a foreign country. He would dwell on the bigotry turned against him during the Aluminium War. “They were up in arms against me,” he recalled. “First of all, I was a newcomer in the Ci
ty. Secondly, I was not an English newcomer, but a German newcomer—a Jewish newcomer, a fellow who has not been educated in British schools, a fellow who speaks with a foreign accent, all that sort of thing.”20

  Hostile takeovers were then unusual in the sedate City, where most deals were quietly negotiated in wood-paneled parlors before burning coal fires. If a merchant banker made an unfriendly bid, he was supposed to notify the chairman of the merchant bank advising the target firm. Siegmund violated this genteel code, which shocked the City. One day, the tall, mustachioed Hugh Kindersley of Lazards ran into Siegmund on the street and asked point-blank if he were buying British Aluminium shares. Siegmund said his firm was only buying BA stock for an investment account—neglecting to mention that it was for another metals company. When Kindersley found out Siegmund had lied to him, he flew into a rage. As a rule, Siegmund didn’t tolerate falsehoods, but he made a distinction between lying and allowing someone to misinterpret a literal truth. He would wryly remark that it was sometimes acceptable “to lie the truth.” In any event, the issue of the “lie” helped to convert the conflict into an extremely ugly, personalized affair. All the City firms had to declare their loyalties, much like friends taking sides in an especially bitter divorce.

  —

  In November 1958, the Reynolds/Tube group twice visited the posh BA headquarters on St. James’s Square and informed Lord Portal of their stake. Offering to pay the equivalent of a hefty seventy-eight shillings per share, they proposed “an association of interests.”21 Lord Portal rebuked them haughtily and indicated that he was negotiating with another group. On Friday afternoon, November 28, the two sides had another frosty exchange at which Lord Portal rose and said grandly, “Excuse me, my bankers will take over.” He started to leave when Ivan Stedeford shot back, “If you leave, Lord Portal, I’ll leave.” With that, Lord Portal sat back down.22 It turned out that BA had negotiated to sell Alcoa a one-third stake for a stingy sixty shillings a share—a deal apparently hatched via André Meyer.23 With extraordinary arrogance—and in a dreadful tactical blunder—Lord Portal refused to put the superior Reynolds/TI offer before the British Aluminium shareholders.

  Capitalizing on BA’s misstep, the Reynolds/TI team left the meeting and hastily set up a press conference. It was late Friday afternoon and Grunfeld knew the British bankers would soon be rushing off to their country houses. So he called a press conference for seven-thirty that evening in a surprise attack. Sir Ivan disclosed the secret negotiations between BA and Alcoa. He also pointed out that the national sovereignty issue was a red herring, since the British TI would hold a 51 percent stake in BA if their bid succeeded. When the press sought a reply from Lord Portal, he had already left for the weekend, affording a public-relations bonanza for Warburgs. Next to the smooth Warburg effort, Lord Portal seemed pompously gauche when he spurned the superior Reynolds/Tube bid as giving away “a powerful empire for the price of a small kingdom.”24

  Siegmund made one last failed peace mission to see his opposite numbers at Lazards and Hambros, but it was clear a grudge battle of monumental proportions was shaping up. As The New Statesman described the animosity directed toward S. G. Warburg & Company: “This bank is regarded as an interloper in the City. Its founder has built it up … by pursuing the vigorous tactics which other banks pursued in the time of their first barons.”25

  As the uproar grew, letters appeared in the Times assailing Siegmund’s patriotism. At one point, Siegmund told Joe McConnell of Reynolds that a leading banker wished to see them. When they arrived, the man said Prime Minister Harold Macmillan had personally asked him to pass along a request that Reynolds cease and negotiate an amicable settlement.26

  Bypassing negotiations, Siegmund appealed directly to shareholders and the press. Financial power was now shifting from the old financial barons to institutional investors, who owned at least one third of the BA shares. These portfolio managers were outraged by Lord Portal’s cheek in describing the sixty-shilling Alcoa offer as somehow preferable to the seventy-eight shilling Reynolds/TI offer. They saw the establishment acting to safeguard its interests rather than to protect BA shareholders.

  Siegmund wasn’t entirely an embattled underdog in the Aluminium War and enlisted some powerful allies. Sir George Bolton, a maverick Bank of England director, had urged him to breathe life into backward British Aluminium management, an attitude shared by some colleagues in Threadneedle Street.27 Although most of the City lined up against him, he knew Barings, Rothschilds, and Klein worts sided with him. When Barings offered him an acceptance credit to signal its support in the heat of battle, Siegmund was jubilant. He called Barings the “finest of all the City houses” and said its senior partner, Sir Edward Reid, “went out of his way to indicate sympathy and support in various ways.”28

  By Christmas 1958, BA and the City were ready to fight back with all the firepower at their disposal. On New Year’s Eve, amid rousing patriotic appeals, fourteen of the top seventeen London merchant banks announced a bid to buy BA shares at eighty-two shillings—four shillings more than the rival bid—to stop the Yankee carpetbaggers. Those accepting the bid would only get eighty-two shillings for half their shares and had to hold their remaining shares for three months. An awed Times of London said the consortium represented “an array of City institutions on a scale never before seen in a take-over battle.”29 Siegmund Warburg, refugee, now faced twenty-seven indignant men with titles, all lined up behind British Aluminium. Besides Hambro and Lazard Brothers, he also had to contend with Morgan Grenfell, Samuel Montagu, and a host of other influential firms. Siegmund was shocked that the City had ganged up on him in this way for such self-serving reasons. Once again, his opponents misplayed their hand, for their new eighty-two-shilling offer made a mockery of Lord Portal’s earlier acceptance of just sixty shillings from Alcoa. Lazards and Hambros hoped the Bank of England would negotiate a peace and call a truce and Siegmund was duly summoned by a telephone call from the governor’s secretary. In a manner that Siegmund found patronizing, Cobbold told him to desist, saying such things were simply not done in the City. Siegmund replied that his firm had a commitment to its clients and wasn’t prepared to change its course of action. He returned to his office in a fury, outraged at the barefaced cheek of the consortium in instigating Cobbold to take such an unprecedented step.

  Ultimately, each side blamed the other for rejecting the peace overture. In the end, Siegmund, fearless, kept buying shares in the open market at a furious pace. As German refugees, he and the uncles didn’t feel bound by the club rules that ordinarily inhibited bare-knuckled competition. Incensed at how the establishment was bucking him, Siegmund warmed to the fight, determined to win at all costs. He now staked everything on victory, for defeat would leave him vulnerable to a legion of enemies.

  On January 4, Reynolds/TI hiked its offer to eighty-five shillings. Siegmund excitedly sensed they were on the verge of victory, and portfolio managers rushed to cash in their shares. Though he knew he was fighting the battle of his life, he remained composed. He had the calm resolution and zest for battle of great generals who can inspire the troops. As Eric Roll noted, Siegmund could be cool in a crisis and enjoyed the sporting element of battle.30 He liked the rapid tempo of takeovers, with their new developments every hour. It also gave him a chance to épater le bourgeois—than which nothing gave him more pleasure.

  By January, 6,1959, Reynolds/TI announced that it had achieved majority control of British Aluminium stock. Siegmund Warburg had defied the British establishment and won. It had been an article of faith that hostile takeovers didn’t happen to major British firms. Siegmund had smashed that myth with one terrific blow.

  This feat gave him worldwide fame. The fifty-six-year-old sphinx emerged to appear in media photos. He didn’t crow about his triumph but he clearly knew its significance. Business Week showed the victor with a crooked, self-satisfied grin.31 He appeared sure of himself and faintly amused by all the fuss. In a bit of attitudinizing, Siegmund wond
ered aloud whether he should retire to read history and philosophy or write a book or two.32

  At first, he encountered tremendous ill-will in the City. People crossed the street when they saw him coming. Lord Kindersley blustered, “I will never speak to that fellow again.”33 When Kindersley attended a reception at the Austrian Embassy, he saw Siegmund, turned around, and walked out.34 Jimmy Warburg was friends with Kindersley, and the Aluminium War sealed his dislike of Siegmund. To try to heal the breach, Lord Brand of Lazards—known as Mr. Establishment—invited Siegmund for a black-tie dinner that proved an uncomfortable affair. Hostility would linger between their two firms for years. Another consortium participant, Morgan Grenfell, would refuse to do business with Warburgs for fifteen years.

  Slowly people realized that they needed Siegmund Warburg and couldn’t afford his wrath. Three months after the Aluminium War, he was approached by a friend of Olaf Hambro, who said, “Olaf feels so sad that this old friendship between him and you doesn’t exist anymore.” Siegmund denied hard feelings, saying Olaf had been like a grandfather to him. “Oh, then you would be prepared to see him again?” He would be delighted, Siegmund said. An emotional reunion occurred in the partners’ room at Hambros, Olaf embracing Siegmund and exclaiming, “Siegmund, haven’t we been awful fools?”35 Yet Olaf never accepted the stock market as the arbiter of corporate fate and made peace with Siegmund mostly as a matter of business necessity.