Like any good soap opera, the story is driven by a conflict between its lead actors – here we have the story of an ambitious underdog taking on seemingly insurmountable odds, as well as his own father. "I've always known it was his dream to run and own Berkeley," says Tony Pidgley Sr of his son. What he did not know was that his son would try to run it before he could walk: 34-year-old Jr, who heads private housebuilder Cadenza (turnover: £670,000) launched a bid to takeover Berkeley, the listed company his dad founded in 1976 (turnover: £867m).
Within 72 hours of the bid being leaked to the press, it collapsed; Pidgley's stunned dad and the Berkeley board rejected his proposal to take the company private. Despite the rejection, Pidgley Sr defended his son: he was, he said, "just ambitious".
Others in the sector and in the City were far more critical – Pidgley Jr's ambition, as well as the subsequent allegations about his personal life, may have cost him his credibility. One City source says that, true or not, the lurid tales in Sunday's papers have simply compounded the poor impression he created with the bungled bid: "Inevitably, it is difficult to separate the business life and the private life." But he does have a few crumbs of comfort: "[A City comeback] might conceivably happen in two to three years. The pound notes don't know whose wallet they're in."
There is no doubt that professionally, Pidgley Jr is similar to his dad. He struck out on his own and founded housebuilder Thirlstone in 1990, much as Pidgley Sr did with Berkeley. But by 1998 he was again tied to his father's apron strings, after Berkeley gobbled up Thirlstone for £15m. In return, Pidgley Jr became managing director of Berkeley Homes, and heir apparent to his father's throne. But Pidgley Jr had growing pains and within two-and-half years had left home once more, setting up Cadenza in 2001.
City analysts believe that Pidgley Jr should have sat tight and waited for his inheritance. "If he'd played his cards right, Berkeley would have been his," says one City source. Instead, he placed himself in exile and plotted to usurp the throne.
Pidgley Jr planned his attack for more than a year, surrounding himself with an army of investors and an advisory team from US investment bank Merrill Lynch. He did this without the knowledge of his father. Surprise was to be his weapon. But the operation was compromised when the planned bid was leaked to the press on Saturday 15 February. His father crossed enemy lines that same day and demanded an explanation. "He told me 'business is business, Dad'," says Pidgley Sr – the mantra that he had told his son to live by.
A comeback might happen in three years – pound notes don’t know whose wallet they’re in
City analyst
But the boy who would be king knew that his offer was already in trouble. Pidgley Jr says: "There's always the risk that people don't take you seriously, because Berkeley's run by my father – that's why members of my team thought right away, 'let's get a plan in place and not play the father–son nonsense'." It was too late. Pidgley Jr was ordered by the stock exchange to reveal his hand early, so he announced on the Monday that he did indeed want to buy Berkeley. By the afternoon, Berkeley's adviser, SG Warburg, had told Merrill Lynch that it was not interested. Deterred by the prospect of launching of a hostile takeover of his dad's company, and the inevitable speculation of a family rift that would result from it, Pidgley Jr withdrew his bid on Tuesday.
"To us, it [the leak] looked clumsy," admits Pidgley Sr. "If it hadn't been leaked we might have had an interesting chat." Interesting though it may have been, the chat would probably have been brief. Pidgley Sr is only 54, and is generally regarded as the best reader of the housing sector in the UK. He is also resolute in his desire to keep the company public. Pidgley Jr, on the other hand, is still a pup and wants to take the company private – despite having spent only two-and-a-half years in a senior position with a major housebuilder. And yet the son wanted to become chief executive and retain the father as chairman and adviser. As one rival housebuilder says: "It's ridiculous to think that Pidgley [Sr] was going to take a back seat. He is still the driving force behind that business. People in Berkeley still wake up expecting to get a phone call and a bollocking from Tony." Or, as a construction analyst puts it: "If you were to give £1bn [the offer Pidgley Jr is thought to have made] to a buyer, you would give it to someone who had built up a £1bn business from nothing, not someone who wanted to prove he's as good as his dad."
Analysts estimate that Pidgley Jr had funds for the deal of between £5 and £15m. The realistic purchasing price was £1.25bn. Usually, investors will back a buyer by up to 10 times. If the deal and the buyer are exceptional, they might back it up to 20 times. Pidgley Jr, who was trying to leverage 120 times his own funds, looks to have overstretched himself – and he may do so again if rumours of his plans to target Taylor Woodrow prove to be true.
A wiser course of action, the City believes, would have been to seek out a firm with relatively low margins and a market capitalisation of about £250m, rather than Berkeley's £921m. If this proved successful, Pidgley Jr would be in a reasonable position to go after one of the major companies. Leslie Kent, a construction analyst with stockbroker JM Finn, says: "On balance, Tony Pidgley Jr has looked overambitious. This ambition might have been better spent on a housebuilder with a lower market cap, a lower return on capital and lower margins."
A director of a listed housebuilder says evidence that Pidgley Jr was aiming too high is given by the length of time the business plan took to construct: "Jr said he had been planning the bid for a year. If he was confident of getting the cash, if it was a serious proposition, it would have taken a couple of months." Others go further, speculating that the deal was simply an act of vengeance – Berkeley has just wound down his baby, Thirlstone. His father does not believe that, though: "That does him an injustice. He had a heavyweight team of advisers."
Father defending son is an apt denouement for this episode of the Pidgley soap opera. Hardly one to shun the media, Pidgley Sr has promised his son that he will not speak publicly about Sunday's stories on Jr's private life. But Sr is known to think the articles have harmed both their reputations. "Tony doesn't think anyone comes out of it nicely," says a Berkeley source.
Postscript
Additional reporting by Phil Clark.
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