How to steal a company for 1c on the Dollar
At one time a fifth of all the electricity in Spain was produced by a Canadian corporation, Barcelona Traction, Light & Power. It did business there through local operating companies, notably Ebro Irrigation and Power. It was in turn controlled by sofina, a major Belgian enterprise.
The company had floated some <£8 million in sterling bonds, on which payments were duly made until the Spanish Civil War broke out in 1936. After the war the Franco government, seeking to rebuild Spain’s foreign exchange reserves, would not permit the conversion of pesetas into pounds to service this debt, so the bonds fell into arrears.
To clear up the problem, sofina, which had ample funds outside of Spain, proposed an arrangement—the so-called Compromise Plan—under which it would take over the sterling debt payments. The plan was offered to the bondholders at a meeting in London, and accepted by a wide majority, although one group, called Fenchurch Nominees, voted against it. In time it emerged that behind Fenchurch was a sinister figure named Juan March (pronounced Mark), who had been buying up Barcelona Traction’s sterling bonds.
Even though the Compromise Plan had been accepted, it had to be approved by Spain’s Ministry of Industry and Commerce. Now began a curious struggle. March threw all his influence— which, although shadowy, was immense—against permitting interest to be paid on the bonds he had just bought. What was going on?
March, born in 1880 in Majorca, was a frail, pallid young man who wore thick glasses surmounting a beaklike nose. He never went to school, instead working in a grain warehouse and as a longshoreman. At an early age he entered business, dealing in pigs, buying land, and financing the shipping of contraband. He developed a highly lucrative tobacco-smuggling operation between North Africa and Spain, with its own cigarette factories and shipping line, Transmediterrania, which later dominated Spanish traffic in the Mediterranean. In 1911 the government of King Alfonso, in order to collect at least some revenue, granted him a monopoly of Spanish tobacco sales. Even then he continued smuggling on a large scale.
World War I was for March a time of gratifying business opportunities. He devised a highly satisfactory modus vivendi with both sides. German U-boats prowled the Mediterranean, but had trouble refueling and finding fresh food. From the Balearic Islands March supplied their needs, in return for cash and free passage for the vessels carrying his contraband. He also informed German Intelligence of Allied ship movements.
At the same time he had a contract to supply provisions to the British submarine base at Gibraltar, and induced the Admiralty to persuade the French authorities to let him ship tobacco from Algiers, in return for intelligence on German shipping.
Beside collaborating with and betraying both belligerents, he found a way of squeezing the onlookers. From neutral vessels he demanded protection money against submarine attack. Those who refused to pay were fingered to the Germans—for a substantial reward, naturally.
During the war March got control of extensive real estate, acquired sugar refineries, started banks, bought a steamship line, and became the dominant businessman in Majorca.
In the 1920s March, by now called El Yanqui because of his energy in both legitimate and criminal activities, was in a position to seek overt influence in Spanish political life. He acquired two Madrid daily newspapers, Las Informaciones and La Liber-tad; the first was instructed to adopt a conservative and the second a leftist editorial position. Strangely enough, since March was illiterate into his forties, he probably couldn’t read the editorials he was paying for. He also made a substantial contribution to the Spanish army newspaper, and a massive donation to the queen, nominally for a children’s hospital, although the money may have gone to Paris to redeem some of the royal family’s jewels that had been pawned there.
He ran for the Cortes, the Spanish parliament, from his home town in Majorca in 1923, and was swept in, in part thanks to an immense outdoor fiesta that he staged for the citizens immediately before the election. Unhampered by idealistic scruples, March found it easy enough to accommodate himself to the changing governments that ruled unstable Spain in those years. Under Alfonso XIII he got his tobacco concessions and bought his newspapers; starting in 1925 he became a confidant of the new dictator, Primo de Rivera, and established the Banco March chain, which thrives to this day. Primo de Rivera had previously ordered his arrest for smuggling arms to Moorish revolutionaries. March fled over the Pyrenees to France disguised as a priest. In time he patched things up with the Primo de Rivera government and returned to Spain. There, he cornered Catalonia’s potash deposits and expanded his shipping, real estate, agricultural, petroleum, and textile interests.
March had his troubles during the Spanish Republic and in 1931 he not only lost both his tobacco monopoly and his seat in the Cortes but was jailed for smuggling. He was also accused of bribery, of using armed thugs to overbear business adversaries, and of. framing three men so that they were shot as German spies, a nasty commercial technique. Fortunately, his confinement was painless: a pleasantly furnished suite, with servants and secretaries. From behind bars he directed the campaign that brought the downfall of the government, added three more Madrid dailies to his press empire, and expanded his oil, farming, and minerals interests. His faithful Majorcans even elected him to the Tribunal of Constitutional Guarantees. After eighteen months March’s guard, claiming to “feel sorry” for him, drove off with him to Gibraltar. The guard was well rewarded for this gesture, being enabled to retire to Greece.
In later years, when it became fashionable to have been persecuted by the Republicans, March attributed his stooped gait to “all those years in prison.”
By now the Spanish Civil War was brewing. The leader of the insurgents, Francisco Franco, was in exile in the Canary Islands. Who sent a transport plane to fly him back? Who provided tens of millions of dollars in financial backing? None other than Juan March, to whom Franco was thus placed forever under obligation—a situation of which March was to make full use.
“Europe, the West, and—why not say it!—Christianity are in this fabulous man’s debt for the support he gave it at certain crucial moments,” declared Juan Antonio Suances, later Minister of Industry and Commerce.
March sat out the Civil War in a hotel in Rome, pushing Mussolini to send more Italian troops and supplies to Franco. After the Civil War, Franco gave March a virtual monopoly on trade between Britain and Spain; he also organized barter deals with both Hitler and Mussolini.
In World War II, March was back at his old stand as double agent and smuggler. One might cite the seizure in December 1941 of a vessel of March’s Transmediterrania Line by the U.S. authorities, on the grounds of exporting prohibited commodities, including parachute silk and radio parts, apparently headed for Germany but shown on the manifest as “ship’s stores.” (One likes to think of the captain explaining to the customs inspectors what shipboard crisis would call for parachute-jumping.) Five members of the vessel’s company were arrested. March, their master, could have assured them that a trip to jail was nothing to worry about—just a step in one’s career, in fact. Still, he took pains to preserve his connections with British Intelligence, and was one of six Spaniards to whom the British Embassy in Madrid was instructed to grant asylum on demand.
This, then, was the position as World War II drew to a close and March hatched his attack on Barcelona Traction. The reader will recall that his nominees, owning some of the company’s British bonds, had voted against the “Compromise Plan” to enable interest payments to resume. The scene now shifts to Madrid, where Minister of Industry and Commerce Suances had to rule on the acceptability of the plan to the Spanish government . . . the same Suances who had once hailed the smuggler-politician as rescuer of “—why not say it!— Christianity.” March applied sufficient pressure; the plan was denied approval. The British bondholders now appealed to their government: Surely there could be discreet diplomatic representations? After all, it wasn’t a question of pushing the Spanish to relax their exchange controls: sofina already had the money available outside Spain to make payments on the bonds.
But March’s years of secret contacts—even if as a double agent—with the Admiralty counted for a lot. The bondholders’ pleas echoed without response down the corridors of Whitehall.
The situation of the British creditors was now dismal indeed. Their bonds were in default and there seemed no way to improve the position. March allowed them to simmer gloomily for a year or two. Although he maintained palaces in Madrid, Palma, and Biarritz, he transferred his main headquarters to a hotel in Geneva, where he set up shop accompanied by an entourage including a cook, a chauffeur, a doctor, a man of business, and a combination valet and bodyguard—the latter no idle bit of ostentation. Now turning seventy, paler, bald, and more stooped than ever, he sometimes made sorties to the center of town to play dominoes or checkers, his only recreations, but mostly he sat in a corner of his hotel, a large cigar in the wan face behind the thick glasses, smoking and thinking. His two sons, Juan and Bartolome, looked after his Spanish businesses.
In London, the Barcelona Traction sterling bonds slowly drifted lower and lower, to a deep, sad discount from their face value.
After a while March concluded that the time had come for the next move. He had his agents, Fenchurch Nominees, make a public offer for any or all of the more senior of the two sterling issues outstanding. In a few months he had collected a majority of the issue for a very modest investment — £2 million worth at face value, but only a fraction of that in the market.
There was a pause while March digested this transaction. Then he struck.
On February 10, 1948, some indignant capitalists appeared before a dim but earnest judge in the modest town of Reus, seventy-five miles northwest of Barcelona, waving a bunch of the sterling bonds. They were bondholders. They were entitled to interest. Interest was not being paid. Since the government had refused permission, there was no prospect that interest would ever be paid. Ergo, the company was bankrupt. As senior creditors, they demanded possession of their collateral. They just had to have those interest payments, they wailed: “We are driven not by ambition but by the fear of our own putrefaction!”
This was a slight overindulgence in rhetoric. The petitioners were, as the English say, nxshing their fences: they had owned their bonds—and then only as front men for March—for barely five days.
Of course, it was not by some caprice of jurisprudence that this particular courtroom in this out-of-the-way town—Reus, of all places—had been the site of the petition. All had been thought out, carefully pondered amidst clouds of Havana cigar smoke in distant Geneva, all fully prepared, including the generous lubrication of the eminent magistrate himself.
Correcto! pronounced the sage jurist, stoutly. You have been wronged, senores, grievously abused. Barcelona Traction, that wormy affair, is adjudged bankrupt. Go get it!
In the following days March’s agents, armed with the court’s decree, grabbed Barcelona Traction’s properties throughout Spain. They invaded the offices, expelled the officers and directors, installed themselves at their desks, started giving orders. They found tens of millions in cash in the till, many multiples of what March had spent on his sterling bonds, quite aside from the immense value of the operating assets themselves—a good quarter of a billion dollars.
A vast howl arose from the company’s shareholders overseas. The company’s lawyer was stunned: “We prefer not to comment, for the commentary would be so harsh that our self-respect forbids it.” Since Barcelona Traction and sofina were foreign companies with foreign shareholders, Canada, Belgium, Great Britain, and the United States all protested.
Then, out of the blue, came a salvo of friendly artillery. One Francisco Garcia del Cid slapped a declinatoria on the Reus court, challenging its competence in the matter. Quite right! Why Reus, of all places? To be sure, this development did complicate Barcelona Traction’s struggle against March in one respect. Until the declinatoria was disposed of, any litigation was frozen. That meant, for instance, that Ebro, which was swimming in cash, could not appeal against the bankruptcy judgment. The declinatoria remained in effect throughout the weeks in which March was seizing the operating companies. Then Senor Garcia del Cid suddenly withdrew it. Instantly the Reus judge announced that since the time within which any appeal had to be filed had expired, the bankruptcy was now absolute. Garcia del Cid had been yet another Juan March stooge.
In April a special judge was appointed to investigate the whole business. Bang! Another declinatoria, this time filed by a certain Juan Boter Vaquer, again, as it emerged, a March creature. This bottled up all legal resistance for yet another eight months.
In May March came up with an offer of settlement. He would give the shareholders of Barcelona Traction <£2 million and a quarter-interest in a new company that would take over all the assets of the old one. He, of course, would take the other three-quarters. This outrageous proposal was indignantly rejected.
December 1948 rolled around—time for the annual meeting of the company, held, since Canada was its place of incorporation, in Toronto. Great was the rage of the wretched shareholders, loud their plaints. But nobody could think of anything for them to do except fume.
Eventually the Spanish government yielded to worldwide indignation so far as to permit the formation of a “Commission of Experts” from Spain, Canada, and Britain, to examine whether in the four decades since its incorporation Barcelona Traction had on balance brought money into Spain, which might justify letting the company, notwithstanding exchange control, repatriate enough to pay off its sterling bonds, or whether it had on balance taken money out over the period. The experts split. The Canadians and British concluded that the company had brought in, net, £19 million, while the two Spaniards claimed that millions of pounds had been taken abroad. The final report of the commission reflected only the Spanish view and concluded that the government had been right in refusing to let the company convert pesetas into pounds, and would be right in continuing to refuse in the future. John Balfour, British ambassador in Madrid, signed the Agreed Minute of this commission on instructions from the Treasury—whose motives can be surmised. The motives of Angel Andana Sanz, one of the two Spanish “experts,” were quite easy to fathom: he was an ex-employee of Juan March.
This obstacle surmounted, March pressed on. He could not get his hands on the actual stock certificates of Barcelona Traction, so in 1951 new ones were printed. It was declared that they must find a newr home before they became “rancid,” so they were promptly offered for sale at auction. The only accepted bidder, who thus acquired all the stock of a company worth about $250 million for a mere $280,000, was a previously unknown enterprise called Catalonian Electric … owned, it turned out, lock, stock, and barrel by Juan March.
The desperate real owners engaged an in-law of Generalissimo Franco himself to cry for justice, and the year after, in 1954, retained Arthur Dean, a partner of the New York law firm of Sullivan and Cromwell, to argue their claims. Dean did obtain an interview with the Caudillo, who, he reported to his clients, had been gracious enough to intimate that the problem would receive attention. But needless to say, Juan March’s claims upon his old friend Franco vastly outweighed any briefs, however tightly drafted, by Messers Sullivan and Cromwell. Indeed, Franco liked the idea of bringing foreign-owned Spanish companies back under Spanish control. How could it be done more cheaply than this? And who could be more worthy than his sometime rescuer, for whom something certainly had to be done?
In Spain March now appeared as the irremovable proprietor of one of the country’s leading enterprises, quite aside from his huge accumulation of newspapers and other assets, both officially and sub rosa in Switzerland. As befitted his status, he held a little party back in Majorca for his granddaughter. A thousand workers strung 200,000 lights in his gardens to provide a suitably cheerful tone. It was said that for the occasion he had bought all the flowers on sale in Majorca. The government radio covered the proceedings minute by minute. This social splash did not empty March’s exchequer, estimated to be in the low hundreds of millions of dollars in Spain, with immense additional sums salted away in Switzerland.
The faithful old shareholders of Barcelona Traction felt neglected amidst this jollity. In 1958 Belgium, home of sofina, which controlled the company, brought suit at the International Court of Justice at The Hague, claiming $140 million from Spain in compensation for stolen assets. For years the case dragged on, filling shelf upon shelf with briefs, documents, and depositions. At one point the matter was voluntarily withdrawn from the court when March offered to pay the full market price for the Barcelona shares. This, however, turned out to mean the price either at the time of the Reus “bankruptcy” or the bogus auction. From $85 in 1928 the shares had collapsed to $3 in those periods, representing a capitalization of $5 million for the whole company, an absurd figure, less than its profit in one good year and only a fraction of its cash in the bank in Spain. So the endless process resumed.
Finally all the arguments had been heard, answered, and rebutted, all the briefs filed, studied, attacked, and defended, all the documents submitted, numbered, and examined. The sixteen judges, not one of whom had been on the bench when the case was originally brought, withdrew to contemplate their verdict. It was a stunner. After eleven years—not months, years!—they declined to rale on the substance of the case at all, invoking the technical point that Belgium lacked “standing”—was not qualified to sue on behalf of a Canadian company.
The rightful Barcelona Traction issued a lugubrious final report in 1974. With melancholy indignation it observed that “the shareholders of this company have been deprived of their entire investment.”
So had Juan March. He had perished in 1962 in a car crash outside Madrid. The newspaper eulogists outdid themselves. The swindler, double agent, and smuggler was compared to Virgil and extolled as “our Picasso or Rubens of financial art.” His foundation, the most important in the country, formed in 1955 when he was a resident and numbered-account proprietor of Geneva, flourishes as a monument to his “love for Spain, her national character, and Christian civilization.”