Thursday, 5 April 2012

The rise and fall of Pattison (part two)

As promised, here's a detailed look at the 1896 prospectus of Pattisons Limited.

We'll start with the prospectus itself. Because I'm idle. I'll just say one thing beforehand: watch out for those crazy Pattison brother names.

"The SUBSCRIPTION LIST for the under-mentioned 15,000 Five per Cent Cumulative Preference Shares OPENS on Thursday (TO-MORROW), 12th March, and WILL BE CLOSED at or before 4 p.m. on FRIDAY, 13th March, and for the country the following morning.

Incorporated under the Companies Acts, 1862 to 1890.

Capital £400,000, divided into-
20,000 Ordinary Shares of £10 each                                    £200,000
20,000 £5 per Cent Cumulative Preference Shares of £10    £200,000

The Messrs. Pattison, the vendors, will take the whole ot the Ordinary Shares, amounting £200,000, and One-Fourth of the Preference Shares, in all £250,000, in part payment of the purchase price.

The remaining 15,000 Five per Cent Cumulative Preference Shares are now to be offered for public subscription, payable £1 per share on application, £2 on allotment, £3 on 15th April, and £4 on 15th May; but payment may be paid in full on allotment if preferred.

The Preference Shares are entitled to a Cumulative Preferential Dividend of £5 per cent per annum, and will also be entitled to rank for return of capital in priority to the Ordinary Shares. Dividends (payable half-yearly 30th June and 31st December), on the Preference Shares will accrue from the dates of payments.

When no allotment is made the amount paid on application will be returned in full, and when the number of shares allotted is less than the number applied for the surplus will be applied towards the payments due on allotments.

Robert Pattison, wine merchant, Leith, joint managing director.
James Swan, chairman of John Swan and Sons Limited, Edinburgh.
Ronald Strang, brewer, Edinburgh.
Walter Pattison, wine merchant, Leith, joint managing director.

The British Linen Company, Leith, Edinburgh, Glasgow, London, and branches.
The Clydesdale Banking Company Limited, Leith, Glasgow, Edinburgh, London, and branches.

Boyd, Jameson, and Kelly, W.S., LeItb.

H. Gilmour and Shaw, 18, St. Andrews-square, Edinburgh.

Carter, Greig, and Co., C.A., Edinburgh.

James Young, W.S., Leith.

Registered: 172, Constitution-street, Leith.
Edinburgh: Pattisons Brewery, Duddingston.
London: 33, Commercial-street, E.

This company has been formed for the purpose of acquiring, at 1st January, 1896, the business of Pattison, Elder, and Co., whisky blenders, exporters, wine merchants, and bonded warehouse keepers, Leith and London; and working and amalgamating it with Pattisons Brewery, Duddingston, Edinburgh. The business was founded about fifty ago by and under the style of Walter G. Pattison, and for the last fifteen years has been managed his sons, Robert and Walter Pattison, who are to continue their connection with the company for at least ten years. The business has always been a highly prosperous and successful concern, and its development within recent years has been very marked.

The brewery, maltings, and warehouses are at Duddingston, Edinburgh, advantageously situated in about four acres of ground, and abundantly supplied with water exceptionally suitable for brewing. capable turning out 1,000 barrels per week, and the output can be doubled at very slight cost.

Lawrence Briant, F.C.S., F.R.M.S., London, the eminent brewers' expert, reports that be has examined the brewery, and finds it to be well arranged and fitted with every modern improvement; he adds that "with the well-arranged premises and pure water, there will be no dfficulty in producing beer of character and stability."

Messrs. Carter, Greig, and Co., chartered accountants, Edinburgh, who have examined the books, report that after eliminating interests on loans and on partners' capital, and allowing for discounts and bad and doubtful debts, the average net annual profits for the six years ending 31st December, 1895, amounted to £22,889 10s. 5d., and that the net profit for the two years and eight months ended 31st December, 1895, averaged £31,611 12s. per annum. The books of the firm have been usually balanced at 30th April each year, but to facilitate transfer the company the balance has been made at December, 1895.

To this average has to be added the profits to be derived from the brewery, which Mr. Strang estimates on the brewers' usual calculation of profits at over £5,000; but Messrs. Pattison expect that, with the houses they have under their control, and with a fair share of outside support, the company will be enabled to place the whole output, in which case the profit will considerably exceed the sum named. The directors also look for a considerable extension of business and saving in working expenses by the amalgamation.

Certain heritable properties, at present occupied by tenants, but which are very suitable for extending the firm's premises, are to be conveyed to the company, and the rents of these properties, which will not be less than £600, will also accrue.

Taking the figures for the last two years and eight months, which the Messrs. Pattison have every reason to think will be fully maintained, average yearly profit £31,611 12s. is shown, to which add estimated profit from brewery £5,000, and rents of heritable property above mentioned £600, making together

                                                                                                                            £37,211 12 0
Deducting therefrom the dividend on £200,000 preference shares at 5 per cent, viz   10,000 0 0
Leaves a surplus of                                                                                               £27,211 12 0

A special reserve fund £50,000 is by the articles of association directed to be accumulated out of profits a the rate of £5,000 per annum for further securing the dividend on the preference shares.

There will be made over to the company:-
I. The heritable properties No. 162, 164, 166, 168, 170, and 172, Constitution-street, Leith; the fully equipped 36qr. plant brewery, at Duddingston; the excise bonded and other warehouses, offices. &c., Yardheads, Leith; the large property, consisting of offices, warehouses, workshops, &C, at 121, 123, 125, and 127. Constitution-street, Links-lane, and Johns-place, extending back to John's-place, partly occupied by vendors and partly let; and the leasehold customs bonded and other warehouses, offices, &c, No. 13, Leith Docks. The above properties will be conveyed free of any burdens, except Feu-duties, ground rents, and conditions of  tenure.
II. The entire very complete plant, machinery, furniture, fittings, &c., the brewery, and other premises.

The above have been valued Mr. W. Hamilton Beattie, architect and valuator, Edinburgh, at £63,355 19s.

III. The stock-in-trade, consisting largely of malt and grain whiskies of the choicer makes, valued by Messrs. Leechman and Gray, brokers. Leith and Glasgow ; and the wines, brandies, &c., valued at the lowest market value. The Company will take over along with these, the outstanding debts due to the firm and the liabilities. The vendors guarantee the stock-in-trade, and the debts due to the firm (which they guarantee) to exceed the liabilities by £100,000.
IV. 535 shares of £10 each, £8 10s. paid up, in the Edinburgh and Co. Limited, estimated to be worth £7.200.
V. A sum in cash of £25.000, as further working capital, and in addition the vendors are to build for the company an additional bonded warehouse, required for the business, at a cost of not less than £3,000.
VI.The goodwill Messrs. Pattison, Elder, and Co.. including their trade marks, brands, labels, &c.

The preferences shares have not heritable bonds or mortgage debentures coming before them and the holders of these shares are entitled to a vote the meetings of the company. A quotation on the Stock will applied for.

The price be paid to the vendors for the whole assets is £400,000; they and their nominees accepting in part payment the whole of the ordinary shares and one-fourth of the preference shares. The vendors intend to give some their employees a certain number of the shares, in order to give them direct interest in the results of the business.

No promotion money has been or will be paid, and none of the shares offered have been underwritten. The vendors will pay the expenses forming the company, including the conveyance of the properties.

The agreement of sale is dated March, 1896, and entered into between Messrs. Pattison, Elder, and Co. and Robert Paterson Pattison and Walter Gilchrist Gray Pattison, and James Young. W.S.. Leith, on behalf the company. There are necessarily many contracts of an ordinary trade nature and other engagements entered into, and applicants for shares will be held to have had notice of all such contracts and to waive any right to have the parties and dates described in this prospectus, under Sec. 38 the Companies Act, 1867, or otherwise.

Copies of the memorandum and articles of association, agreement of sale, accountants' certificate, and valuation of the properties may be inspected at the office of the company's solicitors.

Prospectuses and forms of application may obtained from the bankers and brokers, and at the registered and other offices of the company."
Manchester Courier and Lancashire General Advertiser - Wednesday 11 March 1896, page 1.

I'll begin by saying that £400,000 is a shit-load of capital. William McEwan, one of the largest brewing concerns in Scotland, only had capital of £1,000,000. T & J Bernard, who were already brewing more than the 50,000 barrel capacity of Pattison's brewery, only had capital of £250,000. Aitken of Falkirk, just £150,00. John Somerville, who just like Pattison's, was a whiskey blender and wine merchant moving into brewing, only had capital of £320,000. Why was the capital of Pattison's so great? Was their wine and whisky business worth that much? Talking of which, we'll be returning to the valuation of their whisky stocks later.

Let's recap the history of the firm. It was founded in the 1840's by Walter G. Pattison and in 1881 passed on to his two sons, Robert and Walter. Or to give them their full names, Robert Paterson Pattison and Walter Gilchrist Gray Pattison. (Crazy names, were they crazy guys, too?) Their premises - bonded warehouse, offices, etc., were on Constitution street in the centre of Leith. Two sites on Constitution street to be precise. The one at 121 to 127 that extended back to John's place was a whole block, as you can see on this map:

I assume that the bonded warehouse was theirs.

It looks as if some of the buildings on Constitution street still exist, and very grand they are too:

Then there was the site at Yardheads. It's a shame that no house numbers were given, as it's hard to see what exactly belonged to Pattison's. There were, as you can see, two distilleries and two bonded warehouses on the street:

All in all, quite extensive properties. I'm not surprised that, along with the brewery, they were valued at over £60,000.

Leechman and Gray, who valued the whisky, seem to have been specialists in this field. They also made the calculation of Somerville's whisky stocks in their prospectus. They're a bit vague here about the value of the stock, only saying that it exceeded their liabilities by more than £100,000. That must have been an awful lot of booze. Because Somerville's stocks were only valued at £30,000. We'll be mentioning the valuation of Pattison's stocks again later. And the role they played in their downfall.

The figures don't seem to add up to me. The company was sold for £400,000, but were their assets worth that? The various buildings were worth £63,355 and the stock was worth £100,000 more than the liabilities. That does come anywhere near £400,000.

The whole enterprise seems to have been based on the assumption that, as they already controlled pubs, they could easily sell all the 50,000 barrels the brewery could produce, and probably much more. That's a very dangerous assumption. Especially as the late 1890's were when things started getting sticky in the brewing trade. And especially as they didn't have experience in the brewing business.

Next we'll learn how it all went horribly wrong.

1 comment:

Martyn Cornell said...

It's the old "goodwill" idea - the pretence that the difference in the realisable value of the tangibles and the price being paid is reflected in something intangible called "goodwill", defined today as the value of the brand(s) owned by tyhe company. All bollocks in reality, of course.