Tony Lovett, formerly managing director of Meridian Computers Ltd, is one of many observers of Atlantic Computers’ downfall and its effect on the leasing industry. Lovett’s motives aren’t entirely disinterested, and he acknowledges that he’d like to benefit from some of the fall-out. In October last year, he set up a new company called Eurotek Finance Ltd, which is offering a financial lease package. Lovett says that he cannot offer operating leases, but he will provide consultancy and evaluation services to clients who wish to take that route. Lovett has approached Price Waterhouse, Atlantic’s Administrators, with details of his package, but to date, has received no response. He also offered to approach banks and financial institutions that have been caught up in the embroglio, and set up a consortium that would offer new financial or operating leases to worried users. Despite the lack of response from Price Waterhouse, he says he has received enquiries from both banks and lessees. Lovett is adamant that any new arrangements won’t resemble the discredited Flexlease, which he describes as an ultimate loss-maker. He strongly advocates that users involved in flexible leases check that lessors can meet their liabilities, and if so, are they likely to do so? Which raises the question of who has, and who ought to have, eventual responsibilty for a company’s liabilities? Lovett admits he’s surprised that British & Commonwealth can divorce itself from Atlantic’s debts, and he wonders what the situation would be if Werner Rey’s Adia SA-owned Meridian Computers were to suffer a similar fate. Even as UK managing director, he didn’t know whether Meridian was irrevocably underwritten by the Adia-Inspectorate conglomerate or not. Lovett believes that the existing leasing industry is in for some lean years, and not only because of the Atlantic debacle. He traces many of the problems to the 1970s when several companies became publicly listed. They were floated for large sums of money, and had to make equally large profits to ensure buoyant share prices. However, unlike privately held companies, they couldn’t back off from the marketplace when times were hard, and investors inevitably demand ongoing and higher profitability.
Fairly optimistic
Atlantic, because of the cash-generating nature of Flexlease, wasn’t subject to the same accounting practices and didn’t appear to be building the same liabilities that were bedevilling competitors. Lovett acknowledges that as margins for residual values became increasingly important, he incentivised salesmen to re-jig leases that looked as if they would make losses. He now damns the inordinately high sums paid to acquire Atlantic and Meridian, and says that British & Commonwealth’s UKP416m and Rey’s UKP250m included enormous amounts of goodwill. Yet, there was no way Atlantic could generate UKP50m per year to justify the cost of the acquisition – and that was just to stand still. Consequently, he believes that Atlantic, along with the rest of the quoted leasing companies, tried to force an unnatural level of growth. Lovett doesn’t see the users as being completely blameless, and says they exploited the fierce competition and played at Dutch auctions. It was easier for Atlantic to respond to that and write cheap deals, but everyone suffered at the end of the initial lease when lessors not unnaturally tried to recoup profits. Lovett, unlike most leasing men, says that IBM has been relatively restrained, and its contribution to the current mess has been overstated since flexible pricing is a fairly recent thing. However, he hopes that the likely user-rush to IBM will be short lived since lessees will only deprive themselves of the choices and benefits that plug compatibles can offer. Lovett remains fairly optimistic about the future of computer leasing, but he’s less so about some of the current players. He says that he tried to buy the UK arm of Meridian in 1987, but couldn’t get the necessary backing. AT&T decided not to pursue the acquisition, and Lovett thinks that the company is now concentra
ting on its core portfolio simply to make it more attractive to a purchaser. But even if Werner Rey has decided that $250m was an acquisition too far, and that it’s time to cut his losses, potential buyers and backers are going to be wary of the leasing industry for some time. – Janice McGinn
