Pampered Guests and Feuding Hosts at Claridge’s Hotel
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Version 0 of 1. Few trophies, it would seem, are more seductive to tycoons than Claridge’s, the grande dame of luxury London hotels, which has a long history of tempting buyers and provoking gentlemen’s quarrels. Since the 19th century, monarchs and celebrities have retreated to its $20,000-a-night suites or indulged in tea and scones in its Art Deco reading room. Recently, the hotel starred in a hit BBC documentary, “Inside Claridge’s,” which chronicled the daily dramas of employees whose tasks include plumping bedding for foreign princesses (four duvets required). But the real inside tale is grittier: a do-or-die battle for ownership of the hotel between competing British and Irish magnates who have vowed to win their epic feud or, if necessary, pass it on to their children and grandchildren. “Claridge’s is a trophy and a corporate plaything,” said David Heathcote, an architectural historian in England. “It’s a flagship that says more about you than the money because it has this historical aura around it that makes it a super-brand.” In the British version of Monopoly, he added, the most coveted space in the board game is Mayfair, the exclusive London neighborhood of designer shops and swank restaurants where Claridge’s resides. The real-life monopoly players in this case include, on one side, David Rowat Barclay and Frederick Hugh Barclay, reclusive billionaire British media moguls and identical twins in their late 70s. They own the Telegraph newspaper and the Ritz hotel in London and live mostly on a private island off the coast of France — in a mock Gothic castle protected by a moat. Their adversary is Patrick McKillen, 58, an entrepreneur from Northern Ireland who parlayed a family auto-muffler chain into a fortune in Irish property and a 36 percent stake in Claridge’s holding company, which is known as Coroin and owns two other London hotels. Mr. McKillen is so publicity-shy that for years the only photograph of him that Dublin newspapers could publish was a 1989 shot showing him in a tuxedo and bow tie. The squabble over Claridge’s is part of the legacy of Ireland’s economic bust, which left Irish tycoons’ property vulnerable to takeover when real estate values plunged and loans were called due. But it also is a saga of business warfare waged around the globe with subplots in Monte Carlo and Qatar and a cameo role for Tony Blair, the former British prime minister, who intervened to try to broker a deal. Mr. McKillen says he has spent 20 million pounds, or more than $33 million, in legal fees fighting the Barclay brothers over Claridge’s and its sister hotels. It is not play money to the entrepreneur, who says that these kinds of historic buildings become available only once in a generation. “I love these hotels and have put so much into them,” he said. “The Barclays saw an opportunity because of Ireland’s banking crisis to swoop in and try to take them for a steal in a highly aggressive way. I will not be pushed or bullied.” The Barclays and their advisers and lawyers take a more cynical view. Mr. McKillen, they argue, is holding on so that his “good assets” will cushion him against his debts in Ireland of more than 800 million euros, or $1.1 billion. While the two sides agree on little, they do share the same Monopoly strategy: Show no mercy in the war for control. It was just a decade ago that these landmark English hotels fell into the grip of Ireland’s booming economy, then known as the “Celtic tiger.” Mr. McKillen was part of a highflying group of Irish investors led by a former Dublin tax inspector who organized the €890 million deal to claim the trophy hotels. At the outset, Mr. McKillen bought a 20 percent share in the consortium and enlisted other wealthy Irish investors, including the creators of the show “Riverdance” and the then-chairman of the Anglo Irish Bank. These days, Mr. McKillen, who still takes a guiding role in the refurbishment of the hotels, strolls through the Claridge’s foyer — with its crystal Lalique panels — radiating confidence. Dressed casually in a signature black Dior jacket and crisp open-necked shirt, he looks more like an art dealer than a corporate titan. This is a very different world from the one he grew up in, on the west side of Belfast in Andersonstown, a Catholic stronghold that was a center of strife during what are known as the Troubles in Northern Ireland. He followed his father into the family auto-muffler chain, DC Exhausts, and, like many Irish businessmen, skipped university to dive into his company, eventually helping to sell the chain. In the 1980s, he started making a name for himself, developing shopping centers and hotels. Bono of U2 is a joint owner with him of the Clarence Hotel in Dublin. The purchase of Claridge’s holding company vaulted Mr. McKillen to a new level. With revenue of more than $220 million last year and a combined occupancy rate of more than 85 percent, Coroin has been valued at £1.05 billion, or $1.75 billion. Mr. McKillen’s share of the three hotels is the jewel in his global portfolio of assets, which has been valued at more than $4 billion. The investments also include a 21-story office tower in Boston; a shopping center in Ireland; real estate in California, Asia and South America; and a 200-acre winery, Château la Coste, in France. But the acquisition of Coroin was financed in part through loans from the Anglo Irish Bank. That bank would soon collapse under the weight of bad loans and be taken over by the state as Ireland plunged into economic crisis. With real estate values crashing and the banking system imploding, the original Irish consortium that bought the hotels started to wobble. “There was so much faith in the abilities of these property developers, who had become so rich so quickly, that the banks were overlending,” said Philip Lane, professor of political economy at Trinity College Dublin. “The tragedy is that, after making large amounts of money in Ireland, they then leveraged that to make big bets elsewhere.” This is when the Barclay brothers started circling. The twins, knighted by Queen Elizabeth in 2000 for their charitable contributions to medical research, are the sons of Scottish Catholic parents. The brothers got their start as house painters, moved into real estate and began buying old boardinghouses to convert into hotels. In fact, their backgrounds are not all that different from Mr. McKillen’s, although their personal styles contrast starkly. In written testimony, Frederick Barclay recalls his first and only encounter with Mr. McKillen, in 2010 at the Ritz hotel, which has a formal dress code. “He was not wearing a jacket and tie and his shirt was hanging out,” Frederick Barclay wrote. “I made a joke that it was fortunate that I was there to meet him because otherwise he would not have got past security. Mr. McKillen took umbrage and the encounter turned distinctly frosty.” Unlike some other Irish property magnates, Mr. McKillen cannily started diversifying his investments in Ireland before the downturn began in 2008. As a result, he stayed afloat, even managing to increase his share of Coroin to 36 percent, and avoiding the humiliating fate of one of his fellow hotel investors, Derek Quinlan, a former Dublin tax inspector whose houses were seized by bankers along with a Falcon motor yacht and an Andy Warhol painting of a dollar sign. Mr. McKillen had a crucial asset: an ironclad agreement among the original investors that gave him first rights to buy any shares in Coroin put up for sale. At least he thought it was ironclad. In 2011, the Barclay twins found a way to circumvent the agreement legally. They allied themselves with Mr. Quinlan, after seven meetings in the Cafe de Paris in Monte Carlo. With his empire collapsing, he shifted voting control of his 35.4 percent share to the Barclays, who bought the loans held by the Royal Bank of Scotland and secured by his shares. They also supported Mr. Quinlan, according to court documents, with loans of almost $4 million. The Barclays further increased their stake in Coroin by buying a Cyprus holding company from a different hotel investor, Peter Green, again legally circumventing Mr. McKillen’s right-to-buy agreement by keeping the shares in the name of the holding company. By the time they were finished, the brothers controlled 64 percent of the shares — enough to freeze Mr. McKillen out of power but not to gain outright ownership. So far, the courts in London have backed their right to take control despite Mr. McKillen’s legal challenge that the shareholder agreement was not respected. Thus, they have sway over board meetings, which Mr. McKillen now shuns. In the last 10 days, there has been a flurry of activity, with both camps bidding to buy or repay Mr. McKillen’s personal loans of more than $336 million that are secured by his hotel shares. The loans are held by the state-owned Irish Bank Resolution Corporation, an institution that took over the shell of the Anglo Irish Bank and is systematically selling its loans. Mr. McKillen is pursuing a legal claim in Dublin with a court hearing next week to block the Barclays from buying his loans. He argues that the loans should not be sold to them, alleging that state and banking officials leaked a confidential financial file about him to the Barclay camp. State fraud investigators are looking into the claims. If the strategy fails and the Barclays are able to buy Mr. McKillen’s debts in Ireland, the game might well be over; they would simply call in his loans, which could force him to sell his stake in the hotels. Mr. McKillen says he is lining up financial support from Colony Capital, an investment firm in California. “These hotels get into your soul and the importance is emotional as well as financial,” he said, adding that he is prepared to hang on for decades if it takes that long for Mr. Quinlan to declare bankruptcy, which would free Mr. McKillen to buy his shares. The Barclays and their family-owned business also take the long view, though it is something they are loath to talk about except in court proceedings. (They declined to comment for this article.) “This is a soap opera and has a few chapters left to run,” said Richard Faber, a business adviser and former son-in-law of Frederick Barclay, in an email submitted in the London court case that the judge called remarkably prescient. With the standoff dragging on, the contest has evolved into a war of nerves. Mr. McKillen recently made a surprise visit to the Channel Islands, within boating distance of the Barclay brothers’ moat, meeting with locals involved in an unrelated dispute with the twins. Mr. McKillen has enlisted the help of the former prime minister, Mr. Blair, whom he first met at the World Economic Forum in Davos, Switzerland. Last year, Mr. Blair negotiated with a former Qatari emir, Sheik Hamad bin Khalifa al-Thani, to finance a takeover if Mr. McKillen could win control of the group. But for now, the hotels are stuck in ownership limbo. That uncomfortable truth, though, does not intrude in the hushed tea salon at Claridge’s, where the concierge still jokes that when someone calls and asks to speak to the king, the standard reply is, “Which one?” The day-to-day running of the hotel chain is managed by a chief executive, but Mr. McKillen still keeps a hand in the renovations underway at the hotels, recruiting designers and watching over the kitchens where he has helped to lure celebrity chefs — activities that, thus far, the Barclay brothers have not tried to stop. And through it all, Claridge’s remains a refuge, a neutral zone where exiled nobles retreated during World War II. In mid-December, with the lights twinkling on Claridge’s designer Christmas tree, Mr. McKillen said he encountered David Barclay and his son, Aidan, who manages businesses for the twins. As Mr. McKillen walked into the black-and-white marble lobby, he felt the eyes of the employees upon all of them. By his telling, he thrust out his hand to the men — only to be shown their backs. A few days later, Mr. McKillen followed up the meeting by renewing his demand to buy out the Barclays. Only this time, he cheekily threw in an additional offer to buy the fabled Ritz hotel from the twins. To date, he said, he has received no response. |