By and and and  on May 8, 2010

LONDON — The colorful, controversial and at times comical 25-year reign of Mohamed Al Fayed at Harrods has come to a close — he’s sold the store.

With no successor in sight, Al Fayed over the weekend revealed he’s sold the Knightsbridge institution and its related businesses to Qatar Holding. The investment company linked to the royal family of the Gulf state is said to have paid 1.5 billion pounds, or $2.22 billion at current exchange, including about 600 million pounds, or $888 million, in property-backed debt.

Al Fayed’s banker Ken Costa, the chairman of Lazard International who brokered the deal, said the 81-year-old Al Fayed had decided to retire and spend more time with his children and grandchildren.

“Qatar Holding was specifically chosen by the [Al Fayed Family] Trust as they had both the vision and financial capacity to support the long-term successful growth of Harrods,” Costa said.

Al Fayed, known to his staff as “The Chairman,” will assume the new title of honorary chairman. Qatar Holding, which called the acquisition a “landmark transaction,” said current management would remain in place.

Michael Ward will remain managing director, and an industry source close to Qatar Holding stressed there would be “no lurches in strategy. This is a financial transaction.”

Ahmad Mohamed Al-Sayed, managing director and chief executive officer of Qatar Holding, called Harrods a “unique company that combines an iconic luxury brand and one of the most prestigious retail properties in the world with best-in-class financial metrics.”

Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, Qatar’s prime minister and chairman of Qatar Holding, said, “Our latest acquisition forms part of our effort to realize the vision of His Highness the Emir, and His Highness the Crown Prince, of the State of Qatar. Harrods generates good and stable returns as a business, it will add much value to our international portfolio of investments.”

Principals of Qatar Holdings were in London over the weekend, touring the floors with Al Fayed and hanging Qatar’s flag inside the store. “Harrods is a unique asset for them,” said one person familiar with the deal. “They usually don’t chase trophies.”

Qatar Holding LLC is the strategic and direct investment arm of Qatar Investment Authority. Harrods isn’t the first British retail firm the group has invested in — it also has a stake in U.K. food retailer J. Sainsbury plc. Other investments include Barclays plc, Credit Suisse Group, Qatar Exchange, Qatar Telecom, Qatar National Bank, London Stock Exchange and Lagardere SCA. Credit Suisse advised the company on the Harrods deal.

Industry sources said the sale solved a big problem for father of five Al Fayed, who had no obvious successor. “He’d never have taken the company public because he couldn’t give up control — and there were no heirs,” said one former employee.

None of Al Fayed’s four living children — his son Dodi died in the 1997 car crash that killed Princess Diana — is involved in the day-to-day operations of the family business.

It was clear, too, that Al Fayed was slowing down. Late last year he injured his leg after falling in the snow near his home in Gstaad, Switzerland, underwent a subsequent knee operation, and failed to make it back to the store for the first day of the January sales on Dec. 26 — a major day on the store’s calendar.

The sale announcement came six weeks after Harrods scotched rumors Al Fayed was looking to dispose of the store following reports of an unsolicited bid for the company from a Qatar-based investor. “Talks between Harrods and Qatar Holding had been on-off for a while, and at the time Al Fayed was genuine about there not being a sale. But Qatar sweetened the offer,” said a source close to Harrods.

Another source close to Harrods said Al Fayed wasn’t looking to sell the store. “It was Costa, with his very deep connections in Qatar, who did the matchmaking on this one,” this person said. A source who had worked with Al Fayed added the deal was too good to refuse: “He’s a trader by instinct, and everything is for sale — if the price is right.”

Last month, Fayed told The Sunday Times of London that he planned to own the business for the rest of his life, and when he died he hoped to be entombed in a mausoleum on the roof of the store — a wish he’s expressed repeatedly over the last two decades. “It’s a pyramid for me, a monument,” he told the British paper. “It is the best department store in the world.”

Al Fayed’s other assets include Fulham Football Club and the Ritz Hotel in Paris, and a spokeswoman for Al Fayed said neither is for sale.

However speculation is bound to mount over the future of those properties, and in particular the storied 159-room Ritz hotel in Paris, a magnet for fashion people and events. Persistent rumors that the hotel, established in 1898, is on the block have been fueled by its dire need for renovation as rival hotel operators in Paris spruce up or build new luxury palaces.

The Harrods sale won’t be the only one making headlines in the London retail sector this year. After months of speculation, BlueGem Capital Partners LLP has finally confirmed it is in talks to buy Liberty.



BlueGem is valuing Liberty at about 32 million pounds, or $47.4 million, and said any offer would come after the proposed sale of Liberty’s property. Liberty also confirmed on Friday it had received another approach from a third party — which its board had already rejected.

Analysts said the Harrods sale price — roughly twice the store’s annual gross transactions value, or the commission the store earns from leased departments plus direct sales, of 751.7 million pounds, or $1.11 billion — is in line with the sector average.

The latest figures available for the store were filed to Companies’ House, the official register of U.K. businesses, in August 2009, and refer to the year ending Jan. 31, 2009.

In the 12-month period, Harrods’ net profits fell 19.4 percent to 27.4 million pounds, or $40.6 million, partly due to exceptional items, such as repairs to the store’s facade. It reported a 6.2 percent rise in direct turnover to 464 million pounds, or $687 million, up from 437 million pounds, or $647 million, in the previous year.

One analyst who requested anonymity calculated that Qatar Holding paid a 44 percent premium to acquire Harrods, reflecting “a strong brand name and management control.”

The analyst added: “Qatar Holding did not get this asset on the cheap. Although the store’s profitability is rather low, more can be extracted from this business. Harrods is a very strong franchise, particularly with tourists and Middle Eastern customers, and I wouldn’t be surprised if the new owners expanded abroad. I think you’ll see fairly decent growth going forward,” the analyst said.

Harrods principals confirmed over the weekend that international expansion, into regions including China, was in the cards.

Al Fayed purchased the store in 1985 for 615 million pounds, when it was still part of the House of Fraser group. According to the Retail Price Index, the money Al Fayed paid then would have been roughly equivalent to 1.4 billion pounds, or $2.1 billion, today, giving him a 100 million pound, or $148 million, premium.

Lazard’s Costa said Al Fayed wanted to ensure that the Harrods team he built up “would be encouraged to develop the foundations that he has laid. Of paramount importance to Mohamed Al Fayed was to ensure that the Harrods staff would find in QH an owner who would be supportive of their efforts to maintain the traditions of Harrods.”

It’s no secret that Harrods has had a strong tradition of revolving door management, due mostly to the chairman’s autocratic style (see sidebar).

Last year, former Gucci Group executive James McArthur left his post as chief executive officer of Harrods less than a year after starting his role. Martha Wikstrom was also managing director of the store for a period, staying there for less than two years.

It’s only recently that Al Fayed has begun to let the top brass shine — such as Marigay McKee, the store’s fashion and beauty director, who’s transformed both of those divisions.

“Fayed realized how much value she’s adding to the store, so she’s allowed to have a profile,” said one former employee. “And the sadness in the past was that a lot of good people went for the wrong reasons.”

In fashion, McKee has spearheaded a string of initiatives including the creation of International Designer Room on the store’s first floor, which launched last September. It showcases 40 labels including RM by Roland Mouret, Prada, Balmain, Lanvin, Balenciaga and Chloé.

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