Merchants into manufacturers 1923-1927
3.1 The Newsprint Industry In The Twenties
In the early twenties, when the Bowater brothers were considering whether to launch their family business into the manufacture of newsprint, the industry was dominated by newspaper owners.
Indeed,it is almost true to say that no newsprint mill of any consequence was independent of newspaper interests.
In most cases, newsprint mills belonged to newspaper groups but, in one case, a paper business – Inverserk – owned newspapers and other publications.
It is not difficult to see how this high degree of integration arose between the manufacture and use of newsprint. On one hand, newsprint is a specialised product requiring specialised machinery to make it.
The capital investment is heavy and, if newspaper owners are not buying, there is no immediate alternative use for plant or product.
On the other hand, newspaper publishers are entirely dependent on large, uninterrupted supplies of the specialised paper they need and the purchase of it represents a high proportion – estimated in 1938 at 35 to 40 per cent – of their total costs.
The advantage to the mills of a guaranteed market and to the newspapers of a guaranteed supply is evident.
Both can be secured by common ownership. Edward Lloyd set up the first big integrated enterprise of this kind.
His mills became the biggest in Europe and, even after his son, Frank, in 1918 sold the publishing side – United Newspapers – to a Liberal syndicate, the two branches of the business remained closely linked, because United Newspapers contracted to take all their supplies of newsprint from Lloyds’ mills for thirty-one years, from the beginning of 1920 until the end of 1950.
The Harmsworths followed Edward Lloyd’s example on a wider and more varied scale.
About 1905 they became nervous of a paper famine, caused by ‘the rapidly increasing depletion of the forests of the United States, Canada, and Scandinavia’.
Accordingly, the Amalgamated Press and Associated Newspapers acquired about 3,000 square miles of forest in Newfoundland and set up the Anglo-Newfoundland Development Co. with a base at Grand Falls, where hydro-electric power could be generated.
‘The land was a wilderness’, said an Amalgamated Press publicity brochure in 1912, ‘…but to-day it is the home of a flourishing township and of one of the biggest pulp and paper mills in the whole world.’
By then, it was sending 2,400 tons of paper and 2,000 tons of pulp to the United Kingdom every three weeks. The Amalgamated Press required a greater variety of paper than Grand Falls could supply.
‘All grades of paper’, wrote George Sutton to Northcliffe, ‘are used by the A.P. from cheap news to the highest qualities of ordinary, pure sulphites, esparto and colours.
No one mill in the world could make all our requirements and, in 1910, the Harmsworths set up Imperial Paper Mills at Gravesend to do exactly that.
By 1912, Imperial were producing paper for Answers and similar publications at a rate of 300 tons a week and machines were being built to supply finer grades for periodicals such as The London Magazine and Home Chat.
A good deal of the pulp was coming from Grand Falls and in time, perhaps, all of it would.
Plans for expansion were held up by the war. ‘The idea’, said Sutton in 1919, ‘always has been to increase the output to 2,000 tons a week.
The plans are prepared for enlarging the mill and the machines are being made. Of course, during the War, building was held up and also the making of machinery.
Rothermere specialised in this side of the Harmsworth business. ‘We both know’, Sutton remarked to Northcliffe, ‘that it would be hard to find anyone with his knowledge of paper and the paper-making industry.
Those words were written in the heady days of 1919, when the post-war boom was running strong and Rothermere was very busy.
He wanted to develop Grand Falls ‘on a large scale’ and he wanted a salary of £5,000 free of tax for doing it.
His brother jibbed. ‘”Tax free”‘, he said, ‘will begin a bad system in the business.’
However, he could have £7,500 subject to tax. ‘Harold’, said Alfred, ‘is the only person who properly understands Newfoundland.
It was not only Newfoundland, apparently, that Harold understood.
In June 1919 he wrote to Sutton to say that he and Becker (‘the biggest pulp man in this country’) had bought ‘a mill at Greenhithe belonging to the Wallpaper Company.
It is a very modern mill. It was erected at a cost of something over £600,000 and has been purchased at much below cost.’
It was called Ingress Abbey Mill but Rothermere had the name changed to Empire Mills. It needed conversion from wallpaper to newsprint.
‘I am forming a company‘, Rothermere went on, and it occurred to me that, as a fall back in case of fire or any other calamity, the Amalgamated Press would like to have an interest in it.
If you think anything of this, I can [arrange] for A.P. 100,000 7% Preference shares. You might let me know what you think.
I wish to make it quite clear that this is an offer I am not making in the ordinary way of business but simply because of my association with A.P.
Sutton, evidently startled, went to see the mill – ‘it is a magnificent mill‘ – and reported to Northcliffe.
‘Our paper consumption is so important to us that, in view of a calamity at Gravesend at any time, we should accept this‘, he said, referring to the offer of Preference shares, and added: ‘Of course, this in no way interferes with our extensions at Gravesend for the machines are ordered but, between us,then we shall have the two finest sites on the Thames.’
Northcliffe grumbled about the rate of interest and about the size of the investment – ‘£100,000 is a very large sum and a serious responsibility’– but Sutton was insistent.
‘The Greenhithe mill‘, he said, ‘will fill a gap which is not covered by any mill in which we are interested.’
Northcliffe gave way. ‘Go ahead with the paper mills‘,he said, ‘I am glad that we shall be on the Board and that all precautions will be taken. As long as Harold is alive we shall be all right in any case but we are all getting on in years and never know what may happen.‘
Rothermere made one more important move into papermaking in the early twenties.
In 1920 the executors of Albert E. Reed offered Rothermere shares in the Reed business, one of the larger independents, and Rothermere, through Sunday Pictorial Newspapers and Daily Mirror Newspapers, took 52 per cent of the Ordinary shares,apparently under the impression that the holding would be sufficient to give them control, as in most companies it would have been.
He or his advisors failed, until too late, to discover that in Reeds the Preference shareholders had voting rights which could defeat him.
The Berrys, to whom he offered the shares, refused them and Sunday Pictorial/Daily Mirror Newspapers were left for many years with a minority interest in Reed.
With or without control of Reed, the Harmsworths’ position in 1922 looked strong. They had Anglo-Newfoundland across the Atlantic, Imperial at Gravesend, Empire at Greenhithe.
Then in the mid-twenties the Berrys began to advance in newsprint as well as publishing. When Rothermere sold the Amalgamated Press to the Berrys in 1926 Imperial Paper Mills went with it. A much larger acquisition followed.
In May 1927, Frank Lloyd died and, following his wishes, the Lloyd mills at Sittingbourne and Kemsley were offered to Allied Newspapers,the holding company of the Berry group, and the Berrys without hesitation bought them.
They thus came into possession of the largest newsprint plant in the country; a plant which, Sir William Berry told his shareholders, ‘is …larger than any in Canada or the United States’.
Its output of newsprint was over 200,000 tons a year. We are now in a position to survey the state of the British newsprint industry in the early twenties, when the Bowater brothers were reaching the point of deciding to enter it.
Reliable figures of output are hard to come by but it seems clear that the ownership of mills was heavily concentrated and that after the sale of Edward Lloyd the balance of power, in newsprint as in newspapers, swung from Rothermere towards the Berrys.
Apart from these two, no other newspaper owners also owned newsprint mills but, by contrast, the Inveresk Paper Co., reputed to be one of the largest paper-producing groups in the world, owned the Illustrated London News, other well-known illustrated periodicals and the Lancashire Daily Post.
William Harrison, in control of Inveresk, was looking for a way into London newspapers and, in 1928, he found it by the purchase of United newspapers.
British-owned mills independent of newspaper groups were not numerous nor, after the sale of Lloyds to the Berrys, did they include many of the larger producers.
Allied Newspapers, between 1921 and 1933, dealt with Lloyds and at least ten other suppliers, of whom five were in Norwegian, Finnish or Swedish ownership (Table 5), a figure which emphasises the permanent threat to British newsprint makers of Scandinavian competition.
There were also the Canadians. Newsprint production in Canada, insignificant before 1914 by comparison with production in the USA, was growing very rapidly indeed in the early twenties, chiefly to supply the market in the USA where consumption of newsprint rose by 48 per cent between 1919 and 1924.
By that year, Canadian production was almost equal to production in the USA, having grown by 70 per cent since 1919.
As long as demand from the United States kept up, the Canadians paid very little attention to the United Kingdom or other markets.
Their own home market, however, was very small – less than 5 per cent of the United States figure in 1924 – and it was not difficult to surmise what might happen if Unites States demand should ever fail, though in the roaring twenties there is no evidence that anyone ever let such a thought enter his head.
British newspaper owners without mills of their own thus had a choice between newsprint suppliers at home, who might be owned by their competitors, and abroad, meaning chiefly the Scandinavians, or they they might draw on both sources as Allied Newspapers did.
It was a position not without its advantages but the field of choice was narrow, especially if mills owned by competitors were excluded.
Lord Beaverbrook began to be haunted by fears of a hostile price ring closing around him, though perhaps they did not become acute until after the Berrys bought Lloyds in 1927.
Then, being unwilling to see his suppliers in the hands of competitors, he cancelled the contract between the Daily Express and Lloyd which had been running ever since the Express was founded and turned towards the Canadians.
By 1927, as the next section of this chapter will show, the Bowater brothers had committed their firm to newsprint manufacture.
The price of their product – newsprint – was falling, in spite of rising demand, but the price of their main raw material – wood pulp – was falling also and from 1927 onward it fell faster.
The ratio between these prices was obviously of the highest importance to the newsprint manufacturer and until the late thirties it was highly favourable to the manufacturer in the United Kingdom, controlling no timber supplies and buying pulp from those who did.
For the Canadians, producing wood pulp on a huge scale from their won timber, the case was otherwise as soon as demand in the United States began to fall, as it did from 1930 onward, but to that we shall return.
The Bowaters were going into an industry in which relations between buyers and sellers were remarkably close, probably did two main reasons.
There were very few of them in the first place and since contracts were of the highest importance to each side, negotiations with carried out at the highest level.
Secondly, although the newspaper owners had the normal buyers’ interest in getting newsprint as cheaply as they could, they also had an interest in keeping efficient suppliers in production, since there were so few of them.
In consequence, they were sometimes inclined to treat suppliers rather as partners in a joint enterprise than as parties to a bargain.
‘If a manufacturers’ gives good service’, Beaverbrook wrote to A.R. Graustein of the International Paper Co., New York, ‘he is never squeezed. The ‘Express’ hopes never to be squeezed by the manufacturer.’
Armstrong, Whitworth, Newfoundland, and Northfleet
The firm of Sir W.E. Armstrong, Whitworth & Co. Ltd with which Bowaters opened negotiations in1923, was one of the great industrial names of the world before 1914, ranking with Krupps in Germany, Bethlehem Steel in the USA and Schneider in France.
Some of the heaviest guns and the largest battleships of the Royal Navy were built by Armstrong, Whitworth and in many ways the firm could show everything that heavy industry in late Victorian Britain stood for: splendid craftsmanship and excellent quality; paternal management; hostility to trade unions; rugged self confidence, not wholly justified.
Lord Armstrong, before he died at the age of ninety in 1900, had become a national figure: remote, wealthy and powerful in the magician’s castle he had built for himself at Craigside; suffused with a sinister glamour as an armaments manufacturer.
Something of his personality lingered in the business he had created, of which the chairman until 1920 was John Meade Falkner (1852-1932) whose interests ‘were palaeography, liturgical studies and the history of music’ and who wrote novels which ‘reveal a man profoundly out of sympathy with the twentieth century’.
In the early twenties, the predicament of Armstrong, Whitworth illustrated the disasters that had overtaken British heavy industry in 1921, particularly the collapse of shipbuilding.
There was no longer a demand for battleships—hat was not to be expected after the war- and the demand for merchant ships, at first brisk, had been killed in 1921.
Moreover Armstrongs had greatly expanded during the war in many activities besides shipbuilding, and when demand for war-like stores dried up there was an urgent need to find as many ways as possible to keep plant and labour force employed.
Motor-cars? Locomotives? Certainly, and something more as well: pulp and paper mills in Newfoundland.
By the time this plan was taking shape, Meade Falkner had been replaced by a man of very different stamp: Sir Glyn West (1877-1945).
He had gone to the Ministry of Munitions from Armstrongs in 1915. He came back, having been Director General of shell and Gun Manufacture, with a high reputation for efficiency and drive.
‘Confident of his own abilities’, says J.D. Scott, ‘he was the kind of man who did not listen readily to advice, and he stepped into a position which was ready made for dictatorship’.
He tackled the Newfoundland proposition with enthusiasm.
Among the inhabitants of Newfoundland the Reid family was wealthy, prominent and powerful.
Reid Newfoundland Ltd owned the Newfoundland Products Corporation, founded in1915, which had rights over water power from the Humber River in western Newfoundland, rights over 670 square miles of timberland chiefly along Deer Lake and Grand Lake in the same region and land suitable for factories, power plant, a port and housing.
The company had been set up to produce Cyanamid, but its assets could readily be adapted to the requirements of the pulp and paper industry.
It was that industry, by 1921, which the Newfoundland Products Corporation was preparing to enter, encouraged, no doubt, by rapidly rising demand for newsprint in the USA and the United Kingdom.
In 1922 its name was changed to the Newfoundland Power & Paper Co. Ltd.
The company’s project, as it was eventually put in hand, provided for hydro-electricity from Deer Lake to drive pulp-and papermaking machinery at Corner Brook, on the left bank of the Humber River between Deer Lake and the sea.
Timber could be rafted to Corner Brook onto the river: pulp and paper could be carried away by sea and there was also a rail connection with St John’s, some 300 miles away on the Atlantic coast.
Corner Brook itself had 250 inhabitants and a sawmill: as well as a putting up the power-station and the mill, Reids would have to develop the town. It was an ambitious enterprise.
Reids needed finance and they needed a contractor.
As to the finance, which does not concern us here but will concern us later, their arrangements included £2m First Debentures guaranteed by the British Government and £4m Second Debentures guaranteed by the Newfoundland Government, each Government being represented on the Board of NP&P.
As to the contractor, they went to the top of the trade: Armstrong, Whitworth, who as early as July 1921 had a holding in Newfoundland Products Corporation.
For Armstrongs, there would be heavy engineering work in plenty, such a s turbines for the electrical plant.
Ships would have to be built for the service of the paper mills. There would be the equipment of the mills themselves, to be manufactured by Charles Walmsley & Co., then an Armstrong subsidiary.
In November 1921 William Adamson , Walmsleys’ technical director, was proposing plant to produce 300-320 tons of dry air groundwood pulp and 100 tons of dry air sulphite pulp a day, as well as machinery for 400 tons of newsprint a day giving 122,000 tons a year.
Adamson put the total cost of the pulp and paper plant at $5m (about £1.3m at contemporary rates of exchange).
For the Newfoundland operations as a whole, Armstrongs issued £3m of debentures, backed by the Bank of England.
They were the biggest customers of the Bank’s Newcastle branch, which at this stage was very happy to accommodate them.
In 1923 Eric Bowater was on the Newfoundland Power & Paper Co.’s Board.
It was a surprising appointment. He was about twenty-seven, with very little business experience.
He may have known something about paper mills but it is doubtful he knew anything at all, at first hand, about Newfoundland- not the easiest of countries for a stranger to get to know.
From developments which soon followed his appointment, it is likely that he was nominated by Armstrongs but nothing is known for certain.
It was perhaps the first indication that he was a rising man, not merely in his own firm but in the business world generally, and not only at home.
He worked hard at his directorship.
A journey to Corner Brook, even from relatively near points in North America let alone the United Kingdom, was a matter of days’, not hours’, travelling and he said in 1945 that he made the trip three or four times between 1922 and 1925.
Newfoundland, remote and bleak, made a deep impression on him and engaged his affections.
About the time when Eric took up the NP&P directorship, two negotiations were going on simultaneously.
One was directed at Getting Bowaters appointed selling agents for the paper to be produced by NP&P when Armstrongs had built them their mill at Corner Brook.
The other was about Bowaters’ projected mill at Northfleet, [bottom p35] for which, it seems, Armstrongs were seeking the construction contract.
That there was a link between the two negotiations seems certain, though we have no positive knowledge.
It may be that Bowaters were unwilling to commit themselves to giving the construction contract to Armstrongs until they were sure of getting the sole agency for NP&P, which would bring them an assured income and a share, at one remove, in the largest market for newsprint in the world-the USA, where consumption of newsprint rose 30 per cent in five years from 2,197,000 short tons in 1920 to 2,847,000 short tons in 1924.
The Bowater directors watched the progress of construction in Newfoundland attentively, presumably many through the eyes of Eric, their man on the NP&P Board.
Sir Frederick and his son, Eric, were in charge of Bowaters’ side of the negotiations.
Sir Frederick was ailing. He attended only one board meeting after 4 April 1923 and died on 16 May 1924.
Force of circumstances as well as his own character were thus thrusting Eric into the leadership of his own generation on Bowaters’ Board.
During the spring and summer of 1923, Bowaters’ directors agreed first to a draft and then to a preliminary agreement, but the binding contract was not signed until 11 July 1924.
It then took the form of an agreement between NP&P and the Bowater Paper Co. Inc. of New York, who became NP&P’s sole agents throughout the world for the sale of all paper and pulp (of whatsoever kind or quality) manufactured or sold by the Company’ at a commission of 2.5% on the full mill price received by NP&P.
The Bowater Paper Co. Inc. was set up in September 1923, under Eric’s supervision in New York, to take over the assets of the Hudson Packing & Paper Co. (p.20 above).
That company seems to have been almost inert and the Bowater Paper Co. must have been formed with the sales contract in mind.
Its importance to Bowaters was proclaimed by Eric’s assiduity in attending to its affairs as a Vice-President.
Its President was Earle C. Duffin (d.1949), a Canadian formerly in business for himself in Winnipeg, and its Sales Manager was August (Gus) B. Meyer (1892-1964), a graduate of Cornell University.
For both, Eric conceived a deep affection, and they became close colleagues with him, in later years, in the Bowater business.
After the general principles of the NP&P sales agency had been agreed, but before the definitive contract, Bowaters, working closely with Armstrongs, set up a company to contract for building a paper mill at Northfleet and to run it when built.
The first directors were the three elder Bowaters, Eric and Major Douglas C. Jennings, DSO (1892-1973).
Jennings , three years older than Eric, had connections in the City and in Newfoundland, where he evidently acted as an intermediary between the Reid interests, Armstrongs and the Newfoundland government.
Presumably it was in connection with NP&P’s affairs that he and Eric became acquainted.
He resigned in 1926. Eric, the only Bowater of his generation on the Board, was probably beginning to step into his father’s place.
The company was called Bowater’s Paper Mills Ltd and it came into existence on July 1923.
For Bowaters, this was the decisive step from trade into large-scale industry.
3.3 The Building of Northfleet Mill
The plans for Northfleet Mill were on an ample scale.
They provided for ‘a complete modern paper-making mill’ at the heart of which would be two large buildings: a beater house, perhaps 250 feet long, for preparing the pulp, and a machine shop, some 450 feet long, for the paper machines themselves.
There would be a boiler house, a reel store, a store for waste paper and other buildings.
Roads would be built and railway sidings connected to the Southern Railway, and a river wall and embankment, with a bridge bay, would provide for the landing of materials.
Walmsleys were to build two papermaking machines, among the largest in the world, producing paper of a trimmed width of 221 inches on one machine and 228 inches on the other.
The speed of newsprint machines was rising rapidly as machine-makers applied equipment installed during the Great War to peace time purposes and the output mentioned in the contract was ‘about 800 tons[a week] of newsprint paper of the highest quality working twenty-four hours a day, five and a half days per week’, giving roughly 50,000 tons of newsprint a year.
The capital required for these works, it was recognised from the beginning, would outrun the combined resources of the merchant business and of the owning family.
It seems equally to have been recognised , if not right from the beginning, then very early on, that a great deal of the money needed would have to be found by Armstrongs.
They needed the contract and were prepared to add to their existing commitments in Newfoundland and elsewhere, heavy though these were, to make sure they had it.
The capital structure of Bowater’s Paper Mills Ltd was therefore designed to keep the ownership of the business in the family’s hands but to admit other investors, principally Armstrongs and a syndicate called Power Securities Corporation Ltd as debenture holders.
The share capital was £300,000 in £1 Ordinary shares, of which, by April 1924, £117,000 had been taken up at par by W.V.Bowater & Sons (95,693), the family and their friends.
Table 6 shows how £300,000 6.5% First Mortgage Debenture stock had been subscribed at £90%.
BTH and Babcock & Wilcox were sub-contractors. Saxon Noble was Armstrong’s managing director.
The company also proposed to create £175,000 7% Second Debentures to be taken up by Armstrongs under conditions laid down in the construction contract.
6.5% of £300,000 is £19,500; 7% of £175,000, £12,250. Bowater’s Paper Mills therefore faced the prospect of having to earn £31,750 – 10.6% of the authorised share capital – in interest alone, without providing for redemption of the debentures, before the ordinary shareholders would be entitled to anything.
Someone, it seems, was optimistic about BPM’s earning power and optimistic he continued to be throughout the twenties and thirties, for debenture borrowing on a steadily increasing scale became the characteristic method of financing the rapid expansion of the business.
The contract for the construction of the Northfleet mill, between Bowater’s Paper Mills and Armstrongs, was sealed on 4 April 1924.
Its essential terms were simple.
Armstrongs undertook to build ‘a complete modern paper mill’ and deliver it to Bowater’s Paper Mills ‘in a complete and uninjured state ready to commence operations on or before the first day of July 1925’.
The price was to be ‘the lump sum of £481,926’ and the money was to be provided, as to £279,926 from the proceeds of the issue of £300,000 6.5% Debentures (though it is not clear how the issue price – £90 – was going to provide the sum specified), and as to £208,000 from the issue to Armstrongs of 33,000 £1 Ordinary shares and £175,000 7 per cent Debentures, both to be taken up and paid for progressively as the work went on, so that BPM could immediately pay the money back to Armstrongs.
It appears therefore that Armstrongs, taking their subscription of £90,000 for 6.5% Debentures together with the £208,000 they were proposing to put up for Ordinary shares and 7% Debentures were intending to lend Bowaters £298,000, or 62% of the price they had set on the mill: £481,926.
Since they were heavily in debt themselves, the success of Bowaters’ venture was of more than ordinary importance to them; failure would be disastrous.
Outside the scope of the construction contract, BPM had bought the land from W.V.Bowater & Sons, paying for it with £60,000 raised by the issue of Ordinary shares.
W.V.Bowater also gave an undertaking in certain eventualities to find £50,000 working capital, of which Walmsleys, the machine builders, were to provide half.
Finally, on the same day as the construction contract was sealed, BPM granted W.V.Bowater the sole agency for the output of the mill, at 2.5% commission.
The parent firm thus provided the marketing organisation needed by its new and much larger subsidiary.
Nobody in Bowaters, in 1924, knew much about paper mill construction.
For knowledge, the directors substituted a touching faith in Armstrongs technical competence, presumably derived from Eric’s observations in Newfoundland.
‘We relied upon your special knowledge and experience in this class of work,’ wrote Sir Vansittart to Armstrongs in May 1925, ‘and did not appoint an independent Engineer conversant with paper mill construction, as we otherwise would have done.’
It was an omission which they began to regret almost as soon as work on the site began.
The discovery of a fault in the hard chalk, leading to subsidence of five-eights fo an inch under 30 hundredweight to the square foot, caused them to call in Basil Mott, CB (1859-1938), an eminent consulting engineer, who recommended piling the foundations.
C.O. Ridley, Armstrongs’ man on the site, said piling would not delay completion of the mill ‘in any way whatsoever’, but so emphatic a claim may have seemed ominous.
The question then arose of providing a jetty and Noel, by this time on BPM’s Board, found himself deputised to seek information about the draft of vessels that might use it; hardly, it might be thought, a task for a director.
The Board by this time – May 1924 – was evidently becoming disillusioned with Armstrongs’ ‘special knowledge and experience’. Eric was looking for an engineer.
He found Arthur Baker (1881-1969), one of the foremost men in the paper industry though not, by early training, an engineer.
He was originally a chemist, educated at Bury Grammar School and Manchester College of Science and Technology, who had spent nearly all his career[p40] with Wallpaper Manufacturers Ltd., formed in 1900 by combining 31 firms, about half of them in Lancashire.
He was many sided, with a lively mind, and he added engineering to chemistry to become one of the early British members of a rising profession, chemical engineering.
As he rose in his firm, so also he rose in the industry generally.
In 1919 he became a member of the Council of British Paper and Board Manufacturers’ Association and, in 1920, started the Association’s Technical Section with the intention of bringing a scientific approach to bear on the technology of a somewhat reluctant industry.
He directed the production of shell cases during the Great War but afterwards came back to Wallpaper Manufacturers.
When Bowaters became interested in him, however, he was director and general manager of their close neighbours, Empire Paper Mills of Greenhithe, Kent.
Empire had formerly been Ingress Abbey Paper Mills, one of three papermaking plants (the other two were in Darwen, Lancashire) belonging to Wallpaper Manufacturers.
Baker had been at Ingress Abbey as Chief Chemist and then as Deputy Manager but, when he came back after the war, by this time in charge of all three of the Wallpaper Manufacturers’ mills, he found Ingress Abbey in such a poor state that he recommended selling it.
He knew, he said, that the directors of Wallpaper Manufacturers had very little interest in paper manufacture.
Lord Rothermere, on the other hand, had a great deal.
In 1919 he bought Ingress Abbey, changed its name to Empire and put Baker in, as Director and General Manager, to convert the plant to the making of newsprint, which took two years.
During his time with Empire, Baker went to Newfoundland to advise the Treasury on the affairs of the Newfoundland Power & Paper Co., presumably with the British Government’s guarantee of the firm’s debentures in mind.
He was in Newfoundland in 1922-3 and there, if not elsewhere, he probably met Eric Bowater, adding yet one more strand to the web of connections between Newfoundland and Bowaters.
With this imposing background, Baker would be a great prize for a, firm so new to paper making as Bowaters.
Moreover, he would be gambling with his own career if he joined them.
He knew the strength of his position and, although there is no evidence that he was reluctant to come, he nevertheless make sure he came on his own stiff terms:
Mr. Baker asks to be made Managing Director and to have a free hand in the management.
He wishes all his recommendations regarding all purchases to be acted on by the Board.
As he will be responsible for the quality and quantity of paper produced he particularly wishes to have his advice as to the quality of the pulp purchased accepted and acted on by the Board.
He further wishes to have a free hand in the appointment of the technical staff and… will wish to appoint an Engineer at an early date.
He is at present living in a house which is the property of the Empire Paper Mills Limited and, as he would like to remain in this house, he asks the Company to take over this house from the Empire Paper Mills.
He further asks for a three years agreement at a minimum salary of £5,000 per annum for the first two years and £4,000 in the third year and at the expiration of the agreement he would like to have a substantial interest in the concern.
He went on to say that he would be able to start, full time, on 1 October 1924 and that in the intervening three months or so he would give the Company the benefit of his advice on all matters concerning construction etc.
He added that there were a number of minor modifications in the layout which he wished to make.
‘Minor’, as we shall see, turned out to be a decidedly elastic term.
The board gave Baker nearly all he asked for, in a four year agreement by which he was engaged from 1 December 1924 as resident director and General Manager of the mills at Northfleet.
They did not making Managing Director but they agreed that, during its period of management, no managing director should be appointed.
His salary was to be £4,000 a year or –a very high figure – and he was to receive 3,000 fully paid Ordinary shares on appointment, with a right to take up 2,000 more after 30 November 1927, providing his agreement was not then terminated.
He was entitled, so long as he remained Manager, to remain in his house free of rent, rates and taxes.
On these extraordinarily generous terms – Bowaters must have wanted him very badly – Baker moved from Lord Rothermere’s service into Bowaters’, bringing with him, by arrangement, Douglas MacIvor, who became BPM’s chief engineer, and several others.
Rothermere obviously wanted to see the new mills succeed and was ready to go to great lengths to make sure that they would, presumably in order to widen the choice of newsprint suppliers open to him for his publishing interests, even at the cost of encouraging competition with his own paper mills.
His attitude, as will appear, was more than a passing whim.
As Baker came onto the scene, there were already disturbing signs of bad planning and incompetent management.
The piling recommended by Basil Mott was going forward but not smoothly.
There was disagreement about what ought to be done, misunderstandings about costs, lack of information about the foundations of the boiler-house and power-house, regarding which there was talk of writing to Sir Glyn West ‘requesting him to look into the matter and to supply a satisfactory explanation’.
All this was ominous and its delaying effect was compounded when Baker and MacIvor, as soon as they arrived, began making numerous small and smallish criticisms of the contractors’ work generally.
These, however, were not all.
The efficiency of the mill would depend very heavily on the arrangements made for handling materials, especially pulp.
One look seems to have convinced Arthur Baker that Armstrongs’ ideas on the subject were thoroughly bad.
He was still talking about it thirty-six years later.
‘The contract they had with Armstrong Whitworths’, in his retirement speech, ‘would have provided a very poor Mill.’
He reached this conclusion, after some hesitation in the autumn 1924.
The problem started at the wharfside, where materials were to be landed.
“The first thing,” he had noted when looking at the original layout of the mill, he told the board on 10th of December, 1924,
” was that the proposed pulp landing facilities are quite inadequate and he had immediately taken the matter up with the contractors.”
Armstrongs’ proposed to unload ships in the river onto barges, unload barges at the wharf, and distribute pulp by conveyors”.
“If it were impossible to bring steamers alongside”, said Baker, bargeing alone would cost approximately £12,000 per annum,”
so he suggested going into the whole question of the shipping side of the mill of fresh and calling in experts advise.
He wanted to scrap the conveyor proposal and put in a jetty and a railway system.
There would have to be at least three cranes on the wall for unloading ships, and the placing of the china clay stores, the oil tanks and the coal bunkers would have to be reconsidered, along with the movement of cranes.
He realised that any alterations to shipping facilities would add to the capital cost of the mill but it felt he could not allow the company to continue on the lines as at present proposed as it was certain to involve a much heavier expenditure if alterations had to be made …when the Millwas in operation.
Baker was saying, in effect by the layout of the mill, as designed by Armstrongs, would have to be radically altered several months after construction had begun.
He and Eric were empowered by the board to decide on the necessity of alterations and Eric, still under 30 and still very little experience, had to confront Sir Glyn West with Arthur Baker’s unwelcome message in September 1924.
Apparently neither of Eric’s uncles relished the task, or perhaps he preferred to keep them out of the way.[p44]
currently new the other areas ankles relished the cast engineers and the contractors and in nearly all cases and definite decision was arrived at to fall in with the company’s engineers use stopped Armstrongs’ and very soon afterwards road asking Bowater’s gone from that they realised there was a possibility that war time might be needed to complete the contract star to dances are refused to sell dancers are my refused to recognise the fact long beige book, no doubtful good tactical reasons, but he must have been aware of two things tone and the completion of the mill was going to be seriously delayed and construction was ganged cost more, probably much more than the contract price are after several months or rather confused exchanges between contract as an deck Lawrence, the matter came to a head at a conference on beckoned April 1925 at which to the proposals were made stopped Eric bare water suggested that the milk should be paid for at initio on the basis of cost us an agreed percentage for establishing charges and an agreed profit stopped Armstrongs’ as a condition of acceptance make proposals of their own but Mr. Baker should take sole charge of the work from the present time including arrangement the subcontract, they that the mill can be finished rapidly in accordance with his view Mr. Baker will of course receive from our staff every possible so as our insane lesser Armstrongs’ made a hell are real key to by waters to make up their minds about what they wanted Durham and them they – Armstrongs’ directors – are impressed with the necessity you are going to interest of completing the mill at the earliest possible date, but it seems impossible to concentrate attention on this aspect of them at a Welsh discussions taking place regarding to just eat my refrigeration or additions to the original scheme our
A guy had first begun to criticise Armstrongs’ plans in the summer of 1924 star it was now May 1925 and the contract date of completion –which would ban to be missed bash was 1 July. Armstrongs’ and started was is understandable stop
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Most firms would have gone to law with each other but these two remained remarkably amicable, probably because, in the first place, and each and he did the other so badly to conquer and clay breaking off relations and, in second place each was conscious of weakness stop Armstrongs’ had discovered embarrassing deficiencies in excitement all of them stop bow waters by demanding far reaching alterations Armstrongs’ bounced, were going against a clause in your written contract which laid down Baker had no right to overall engineering decisions taken before he was appointed against this background Bowater’s bus paper machine and laines production on 8 February, 1926; the second on 6 April, rather more than nine months after the date set by opening a complete mill stop it and we both machines working, completion was a long way off and Bowater’s troubles of far greater than the usual diet of calls is was starting a neither man a fracture law materials handling could yet be as efficient as had been planned and Jimmy what should have led to advance as a whole neither manufacturers’ raw materials handling could yet be as efficient as had been gland and to me what should have been the proudest moment in its history so far the firm and was compelled to advance at a car will stop moreover, delay and the asked by the extra costs had done so much damaged by what is finances but there was no certainty that the business would survive.
3.4 CRISIS AND RECOVERY
At the beginning of 1926, Bowaters’ plans for their new manufacturing business lay in ruins.
They were based on two major assumptions.
The first was that the price of building the Northfleet mill would be fixed and unalterable and would be paid as laid down in the construction contract.
The second was that the mill would be in production during July 1925, so that orders could be taken beforehand for forward delivery and cash would almost immediately start to flow when the machines began to turn.
The first assumption was destroyed by the comprehensive re-planning of the mill, and the delay caused by re-planning destroyed the second.
Sir Vansittart wrote in May 1925:
“Any delay will mean considerable loss of revenue, which we had relied on obtaining for the sale of paper during the first year’s operation.
With the Mill in its present condition, we do not feel safe in accepting orders for substantial tonnage for forward delivery at the remunerative prices now offering, and it is very difficult to see how long the present situation of favourable conditions in the paper market is likely to continue.”
Armstrongs’ situation, interlinked with Bowaters’, was equally precarious.
At the heart of it lay Newfoundland. Armstrongs’ mismanagement there had been as bad as at Northfleet, with far worse consequences.
When the mill at Corner Brook opened in August 1925, Armstrongs’ total indebtedness was $45m (£9.3m) on which annual interest charges were running at $22.50 (£4.13s.9d) a ton of newsprint when the price per tonne in England was averaging £17.10s.
Armstrongs’ debt to the Bank of England at the same time was least £2.6m and the governor, Montagu Norman, was preparing their affairs investigated.
Investigation would lead straight towards Bowaters, for Bowaters owed Armstrongs money which they badly needed.
But Armstrongs, like Bowaters, were caught by the breakdown of the construction contract.
They had received £265,000 under the ‘fixed price’ clause but, as soon as it was abolished, they no more knew how much they ought to receive than Bowaters knew how much they ought to pay.
The new basis of pricing – cost plus allowances for overheads and profit (quaintly called ‘time and lime’) – afforded scope for months of investigation and argument by Bowaters and their accountants, during which time Armstrongs received nothing although construction was still going on.
It may now be apparent why Bowaters and Armstrongs could not afford to with each other. Bowaters dared not provoke Armstrongs into stopping construction, for in completion of the mill lay their only hope of survival.
In Bowater’s survival, in turn lay Armstrongs only hope of getting the money they so badly needed, so they dared not drive Bowaters into liquidation.
The construction contract between the two firms, as solicitors called in by the Bank of England to examine it observed, ‘seems…to have been looked upon rather as a joint venture than as a Contract directly between two separate entities’, and, indeed between the autumn of 1924 in the spring of 1927 is probably fair to say of Bowaters and Armstrongs that the collapse of one would have destroyed the other.
It was extremely fortunate for Bowaters that Montagu Norman, taking an unconventional view of the Bank of England’s place in the economy, considered it his duty to see that on did not collapse.
Bowater’s directors started 1926 by deciding, on 13 January, that the company was seriously short of capital.
With £250,000 unfunded debt, it would have to be reconstructed. Over the next three months they took measures no doubt intended as preliminaries.
Of the greatest importance in the long run, perhaps, was their decision to change their auditors. Instead of Messrs Touche they appointed Blackburns, Barton, Mayhew & Co – and, by doing so, laid claim to the professional services of Sir Basil Mayhew (1883-1966).
Not the least of Eric Bowater’s talents was his skill in choosing people, and many of the associations formed in these early days served him well and lastingly.
As he came to rely on Arthur Baker on the technical side, so he came to rely on Sir Basil, though not on Basil alone, in financial matters.
His ambitions always outran his immediate resources and he needed the best advice he could get.
More in the nature of the emergency aid, perhaps, was the service rendered by F.R.A. Shortis, elected to the board on 22 February 1926. He enabled the company to negotiate a loan of £50,000, on the security of pulp stocks, from Kleinwort, Sons & Co,
The mill company could also fall back on the resources of its parent.
In the early months of 1926, a new company, W.V. Bowater & Sons (1926) Ltd, was formed to take over the old merchant business by exchange of ordinary shares, nearly all held within the family, and by cash purchase of the preference shares.
It was also intended to raise fresh Preferred capital on the market but, for a newly launched, rather obscure undertaking with a subsidiary – Bowater Paper Mills – in rough water, that was far from easy.
Eventually John Keeling 1895 – 1978, who, with two partners, had formed the London and Yorkshire trust, agreed that the trust should underwrite the issue: 200,000 8% Participating Preferred ordinary shares of £1 each.
Make the issue go, the shares were entitled not only to an 8% dividend but also, after an 8% ordinary dividend had been paid, to another 2%, making 10% altogether.
The trust charged 2 ½% underwriting commission, with an overriding commission of 1% on the nominal value of the shares. With bank rates at 5%, it was expensive borrowing.
Arthur Baker and Douglas Jennings were not on W.V.Bowater’s board but otherwise the new company’s directors and BPM’s were the same and, apart from running a flourishing merchant business at home and abroad, including the Corner Brook agency, W.V.Bowater acted as a holding company for all the Bowater interests.
In capacity, almost as soon as the company was formed, it was repeatedly called upon for help by BPM.
In February 1926, W.V.Bowater agreed to buy BPM’s paper for cash. In March, the company guaranteed Kleinwort’s loan to BPM. In April, WV Bowater was asked to buy three houses in Northfleet for £3,500 and to advance the £25,000 for working capital promised by the private company in 1924 (p.40 above), and twelve days later BPM’s state was so desperate that they were asking W.V. Bowater to advance £13,000, against paper invoiced, to pay the wage bill.
In the midst of its embarrassments, the Northfleet mill was hit by the General Strike, which began at midnight on 3 – 4 May 1926.
The government, fairly well prepared but emergency measures into force, including the publication of the British Gazette, printed under Winston Churchill’s close and enthusiastic supervision on the presses belonging to The Morning Post.
The British Gazette needed paper, which would have two, cross picket lines, so the government appointed a Controller of Paper Supplies, Eric Bowater.
The choice was surprising; no doubt it reflects Eric’s rapid rise within the industry.
He was armed with considerable statutory powers and it appears that, on 5 May, he succeeded in running a convoy of lorries, laden with paper, driven by volunteers, protected by police, from Edward Lloyd’s wharf to the Morning Post’s offices.
The volunteer drivers, here as elsewhere, came mostly from the middle classes, more confident then than later of its power, its position in society and the rightness of its views.
In the course of a search for any supplies of paper that might be available, Eric deputed his cousin, Ian (b.1905), who had recently joined the business, to collect paper from the Sunday Times, carrying a warrant in his pocket in case William Berry demurred. William Berry did not.
Back at the morning Post, Ian was able to announce the arrival of William Berry’s paper to Churchill, smoking a huge cigar and greatly enjoying himself. Churchill later called a conference at which it was decided to commandeer a paper mill, and the mill chosen was Bowaters’, because their machines would run without waste on the 74 inch reels required.
In the early hours of Sunday, 9 May, a detachment of Royal Engineers and sailors, under Capt C.G.Martin, VC, DSO, landed from barges on the river, took over the mill on behalf of his Majesty’s Stationery office, protected it with barbed wire, posted armed guards and ran up the union jack
Arthur Baker, armed with a pistol and dismayed by the striking propensities of his workforce, ran the mill with volunteers who all lived in Army tents, on Army food, within the mill perimeter while the Royal Navy patrolled the riverfront.
Paper went to London in barges provided by the Port of London Authority. [page 50]