Chelsfield PLC

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Chelsfield PLC

67 Brook Street
London
W1Y 2NJ
United Kingdom
Telephone: +44 20 7493 3977
Fax: +44 20 7491 9369
Web site: http://www.chelsfield.com

Private Company
Incorporated: 1986
Employees: 553
Sales: $285.60 million (2003)
NAIC: 531190 Lessors of Other Real Estate Property; 236210 Industrial Building Construction; 236220 Commercial and Institutional Building Construction; 237210 Land Subdivision; 531120 Lessors of Nonresidential Buildings (Except Miniwarehouses); 551112 Offices of Other Holding Companies

Chelsfield PLC is one of the United Kingdom's major property development groups. Chelsfield has been the motivating force behind a number of prominent U.K. developments, including Merry Hill, in the West Midlands, one of the United Kingdom's largest shopping centers, and the huge White City project, which at the time of its completion in 2007 will be the largest retail site in the Greater London area. Chelsfield also holds a 50 percent stake in the Paddington Basin commercial, office, and retail project, which, like White City, will include an extension of the London rail and subway network. The company also has been chosen to assist London & Continental Railways in developing its proposed £3 billion Stratford city project, in East London. Other Chelsfield holdings include the Wentworth Golf Club and a 75 percent stake in money-losing Global Switch. Chelsfield was founded by Elliott Bernerd, who remains the company's hands-on chairman. After Bernerd took the company private in 2004, however, he faced a challenge for control, and by October 2004 the company had received buyout offers from Australia's shopping mall giant Westfield. That bid was countered by a rival offer from another Australian property group, Multiplex, which holds a 7 percent stake in Chelsfield.

Investment Success in the 1980s

The son of a wealthy British film executive, Elliott Bernerd was just 15 when he left school. In 1962, at the age of 16, Bernerd began working with a property agent in London, and by the time he was 21, Bernerd had become a partner in that firm. Yet Bernerd never received formal certification as an estate agent—a move that would have barred him from becoming an investor in the property deals themselves.

In the late 1960s, Bernerd teamed up with London property heavyweight Stuart Laurie, who served as Bernerd's mentor as the pair began acquiring a portfolio of West End properties in the 1970s. Bernerd quickly earned a reputation as a shrewd investor, locating inexpensive properties that quickly rose in value. Nonetheless, Bernerd nearly lost his first business during the collapse of the British real estate sector in the mid-1970s. Bernerd managed to save the business through an alliance with Lord Sterling, of the P&O group. Soon after, Bernerd found a buyer for the business in Morgan Grenfell, then in the process of an ambitious acquisition drive.

One of Bernerd's most successful projects came in the early 1980s, when Bernerd led an investor team including Jacob Rothschild and Stuart Lipton in the purchase of a plot of land near Heathrow Airport. Paying just £8 million for the site, a former landfill, Bernerd became the first in the United Kingdom to develop an American-style business park. For this project, Bernerd set up a new company, Stockley Group. The site's proximity to the country's major international airport quickly attracted interest from the rising number of multinational companies that were then just beginning to transform the global economic scene. In 1988, the investment group sold off most of Stockley Park for £365 million. Bernerd himself earned some £20 million on that deal.

By then, Bernerd had set up a new property investment vehicle, Chelsfield PLC, founded in 1986. Chelsfield quickly began amassing a property portfolio. Among the company's most noteworthy deals in the late 1980s was its purchase of the exclusive Wentworth Golf Club in 1988. Bernerd paid just £17.7 million for the club—just ahead of a sudden boom in the golf market. By 1989, Bernerd had sold off 40 percent of the club to a group of Japanese investors, raising a total of £32 million.

Chelsfield's property interests were not limited to the United Kingdom. In 1990, the company formed a 50/50 partnership with P&O in order to acquire Laing Inc. and its portfolio of 6,700 rental apartments and 2.7 million square feet of commercial property in Atlanta, Georgia. While initially the deal seemed to be a dud, given the crash in the global housing market in the early 1990s, the portfolio regained its value toward the middle of the decade and the Atlanta Olympic Games of 1996.

Property Developer in the 1990s

By then Chelsfield had already disposed of the major part of its Laing holdings as the company re-focused itself from a property investment group to one of Britain's major property developers. Launching that process was the company's listing on the London Stock Exchange in 1993.

The listing coincided with the company's acquisition of the then-bankrupt Merry Hill Shopping Centre project. At the time, the original preferred buyer of the project had put off acquiring the site, claiming that it was contaminated. Bernerd convinced the receivers of the site to allow him to conduct environmental tests and when these proved that the contamination of the site was minimal, Chelsfield won the right to purchase the site. Bernerd brought in a group of Saudi Arabian investors to put up some £120 million in debt and equity, and Chelsfield itself gained control of some £90 million of the site for just £35 million. At the same time, Bernerd himself pocketed a £6 million finder's fee paid to him by the Saudi investors.

Chelsfield later bought out the Saudi investors, gaining full control of the Merry Hill site. Under the company's management, the shopping center became one of the largest in all of the United Kingdom and by 2004 was worth some £2 billion. Chelsfield continued building up its portfolio, with investments including hotel conversions in New York City and business parks in New Jersey, although the majority of the group's property portfolio remained focused on the London area.

Not all of the company's investments provided it with success, at least in the short term. The company was forced to sell off the New Jersey properties in 2004 amid a soft market there. More troubling for the company was its investment in Global Switch International Ltd. Founded in 1998, Global Switch appeared to have created a new niche—that of technical real estate. Global Switch promised to develop properties providing purpose built data center facilities for the growing ranks of IT and telecommunications companies during the high-tech boom at the beginning of the new millennium.

Chelsfield initially bought a 33.3 percent stake in Global Switch in 1999, as that company readied the opening of its first site in London's Docklands in September of that year. Global Switch then began rolling out its concept to other markets, including Amsterdam, Frankfurt, Paris, Singapore, and Sydney, as well as a second site in London. Chelsfield continued to increase its stake in Global Switch, taking majority control, at 75 percent, by 2002.

Yet by then, the crash of the global IT market left Global Switch vulnerable—as its tenant companies collapsed in the early 2000s, Global Switch suddenly found its vacancy rates rising. By 2001, Global Switch's difficulties had dragged Chelsfield into losses as well. At the end of that year, Chelsfield posted a loss of £25 million. Losses due to the Global Switch holding continued into the next year. Chelsfield attempted to unload Global Switch as early as 2001; that deal fell through, however. By the end of 2003, Global Switch's poor performance had again dragged Chelsfield into the red, with losses of more than £20 million.

Up for Grabs in the Mid-2000s?

Chelsfield's problems were exacerbated by Bernerd's health problems, as he battled jaw cancer in the early 2000s. At the same time, Bernerd and Chelsfield were in the process of putting together a new shopping center for London, White City, slated to become the city's largest upon its scheduled completion in 2007. Chelsfield took charge of developing the project, while the construction work was being carried out by Australia's Multiplex. The company also was developing another ambitious project, Paddington Basin.

By 2003, facing increasing shareholder pressure, Bernerd launched a drive to take Chelsfield private. Bernerd's initial offers were rejected by the company's shareholders. Finally, at the beginning of 2004, the shareholders agreed to a new offer of 320p per share, valuing the company at £895 million.

To finance the buyout, Bernerd began gathering a range of investors, including Multiplex, which bought more than 7 percent of the company; Israeli diamond magnate Beny Steinmetz, who bought 2 percent; and the Bank of East Asia, led by Bernerd's friend (and best man) David Li, which acquired 3.5 percent. A still larger stake went to the Reuben brothers, David and Simon, who had parlayed businesses in scrap metals and carpets into a fortune worth more than £2 billion.

Although longtime acquaintances, Bernerd had never done business with the Reuben brothers before. The Reubens agreed to acquire 35 percent of Chelsfield, which cost them £135 million, compared with Bernerd's 17 percent. Yet Bernerd also had a series of agreements with other investors that gave him effective control of the company.

Company Perspectives:

Chelsfield plc is regarded generally as one of the more energetic and successful property companies quoted on the UK stockmarket. The group is engaged primarily in central urban property development and investment and maintains a consistent operating philosophy. The aim is to identify individual transactions which, individually or collectively, can have significant positive impact. The group tends not to acquire assets for the sole purpose of investment but seeks to enhance value through site assemblies, lease restructuring, refurbishment or development.

Chelsfield began selling a number of assets in order to help pay off the company's debt, which reached £1.6 billion after the buyout. In August 2004, the company sold the White City development to Germany's CGI, which paid £1.4 billion for the prestigious project. Chelsfield, however, retained an option to buy back 50 percent of White City upon its 2007 completion. By September 2004, Chelsfield also had begun looking for buyers for its 60 percent stake in the Wentworth Golf Club.

By then, however, Bernerd's relationship with the Reubens had soured. The Reubens were said to have misunderstood the nature of their investment in Chelsfield, hoping to achieve a rapid and short-term gain by selling off the company's holdings. Yet Bernerd remained focused on the long term, and proved reluctant to strip the company of the assets.

When word of the conflict emerged, Chelsfield suddenly found itself the target of a takeover bid from Australian shopping center giant Westfield, which made an offer of £585 million ($1.3 billion) for Chelsfield in October 2004. Multiplex, with its 7 percent stake in the company giving it the preemptive rights, immediately announced that it too was preparing an offer for Chelsfield.

Despite the effort to take over the company he had founded and nurtured since the mid-1980s, Bernerd remained pragmatic. In September 2004, Bernerd suggested to the Times that should he indeed lose control of Chelsfield, he would simply move on to start up a new business. As he told the Times: "When Frank Lloyd Wright was asked what his favorite project had been he would say 'the next one.' " With or without control of Chelsfield, Bernerd was certain to remain one of the United Kingdom's most influential property developers.

Principal Competitors

GUS PLC; Taylor Woodrow PLC; Singer and Friedlander Group PLC; Arriva PLC; BAA PLC; M.J. Gleeson Group PLC; Enterprise Inns PLC; Birse Group PLC; Heron International.

Key Dates:

1983:: Elliott Bernerd founds Stockley Group to develop Stockley Park near Heathrow Airport in London.
1986:: Bernerd founds a new property investment portfolio, Chelsfield.
1988:: Chelsfield buys Wentworth Golf Club for £17.7 million; Stockley Park is sold for £365 million.
1989:: Chelsfield sells 40 percent of Wentworth Golf Club for £32 million.
1990:: Chelsfield acquires 50 percent of Atlanta, Georgia-based Liang Inc.
1993:: Chelsfield is listed on the London Stock Exchange; Merry Hill Shopping Centre is acquired.
1996:: Chelsfield refocuses from a property investment group to a property development group.
1999:: Chelsfield acquires an initial stake in Global Switch International.
2000:: Chelsfield launches development of the White City project, to become London's largest shopping center in 2007.
2002:: Chelsfield acquires 75 percent of Global Switch.
2003:: Bernerd makes a bid to acquire Chelsfield and take it private.
2004:: Bernerd succeeds in taking Chelsfield private; White City is sold off to Germany's CGI in August, and Wentworth is put up for sale as well.