Divided dynasty facing crunch vote

IT started as a family affair. But the battle for control of Caledonia Investments, whose interests range from banking to luxury resorts, is now pitting some of the City's richest and most prominent names against each other and threatening to spill some very blue blood on the carpet.

The fallout from this most aristocratic of financial tussles could be felt around the Square Mile for years to come.

Caledonia is the £694m public face of the super-wealthy Cayzer family, whose immense fortune was founded in 1878 when a Scottish schoolmaster's son set up the Clan Line steamship company, which was destined to become one of the largest cargo fleets in the world.

Today the Cayzer Trust, whose hundreds of shareholders are all family members, owns 37.4% of Caledonia while individuals in the sprawling clan control a further 12%. And while some of them are happy with Caledonia's performance, others, including the 71-year-old patriarch of the dynasty, Sir James Cayzer, are distinctly unimpressed.

They claim the investment firm trades at too big a discount to the £850m value of its assets. They want the business liquidated and cash handed back to shareholders.

Next month the divided Cayzer family will meet to decide on the company's future. It is likely to be a stormy meeting.

In fact Sir James makes an extremely unlikely rebel. A friend of the late Queen Mother, he has a fleet of Rolls-Royces, though he cannot drive, an 8,000-acre estate in Perthshire and a permanent suite of rooms at top London hotel Claridge's.

His family supporters include his nephews Nigel Cayzer and Lord Rotherwick, as well as Ian Molson, a member of the Canadian brewing family, who married into the Cayzer family.

Sir James has been trying to reform the Cayzer Trust and Caledonia for several years, but the campaign has now gained fresh impetus with a collection of pukka City figures and fund managers joining his cause. The rebels have brought on board Sir John Craven, former chief executive of investment bank Morgan Grenfell and the man who helped to break up the Lonrho conglomerate and sold the Fleming family's investment bank.

Craven aims to chair two companies - one would distribute the proceeds of a break-up of Caledonia, the other would operate as an investment vehicle for the Cayzer family. His chief executive would be Nick Morrell, who helped to shake up Lonrho.

Other proposed directors read like a Who's Who of the City, including former London Stock Exchange deputy chairman Stanislas Yassukovich. Also in the rebel camp are two high-profile City institutions, Hermes and Schroders, giving them a total of about 20% of Caledonia's shares, but they are hoping to flush out more support. Craven said: 'We are very serious about this. Our proposals are in the best interests of all shareholders.'

His claims are denied by Caledonia, whose chairman is Sir James's cousin Peter Buckley, who also chairs the Cayzer Trust. The chief executive is Harrow-educated former Abbey National banker Tim Ingram. He said the company had outperformed the wider market, the gap between its market value and the value of its assets had been narrowing and that the rebels' proposals would 'destroy' the company.

'We would like this to go away, but all we can do is keep running the company in the long-term interests of all shareholders,' he said.

As this most articulate slanging match escalates, analysts say hedge funds are moving in on the shares and acquiring stakes that could prove crucial if the break-up plans ever come to the vote.

The Cayzer Trust recently made a rare public announcement that the majority of its shareholders backed the Caledonia board, though it has called next month's meeting to confirm that position.

Sir James and his supporters are likely to lobby their kin in the runup to the meeting, but even if they lose the vote, the battle for Caledonia's future is set to run and run. Other institutional shareholders in Caledonia are said to be ready to join the rebels.

With Caledonia's stakes in businesses such as the £1.1bn Close Brothers seen as potential platforms for bidders, the repercussions of this family spat could rock the Square Mile.