Warring giants take breather

LONDON - The high-profile High Court hearing of the negligence battle between Unilever and Mercury Asset Management has been halted in favour of private negotiations, raising speculation that the two sides are about to settle the £130 million ($446 million) case.

Unilever's pension fund trustees are suing Mercury, now owned by Merrill Lynch, claiming that lax internal controls allowed Alistair Lennard, a young fund manager, to run the portfolio in a way which was too risky given the performance targets set by the scheme.

The two City of London giants unsuccessfully tried to reach an out-of-court settlement before the case began eight weeks ago, despite personal animosity between Carol Galley, the co-head of Mercury, and Wendy Mayall, the chief investment officer of the Unilever pension fund.

It is understood the two sides could not agree on a compensation sum that Mercury would be prepared to pay the consumer goods company.

Mercury was also unwilling to accept that it had acted negligently.

If found guilty of doing so, it could face a raft of other cases.

Since the start of the trial, the performance of both sides' witnesses has changed the minds of both groups.

Unilever is understood to be more confident than when it started, due to the performance of its own witnesses and feels that its counsel, Jonathan Sumption, QC, has undermined a number of Mercury's key arguments.

Mercury is thought to have offered £20 million in compensation to Unilever before the start of the trial but may now be preparing to increase that amount, possibly to the £60 million figure which Unilever wants as an out-of-court settlement. Unilever is pursuing Mercury for ignoring performance targets set in late 1996 in a bid to control risk more effectively in the £1 billion pension portfolio.

In his opening statement Mr Sumption said Mr Lennard was a "wild card", whose investment choices "invited extreme results either positive or negative".

Over the period from January 1997 to March 1998, when Mercury was fired, the Unilever fund lagged behind its benchmark by 10.5 per cent.

Mr Lennard denied that his decisions were too risky and defended his strategy of investing heavily in a small number of companies.

Merrill, which has countersued Unilever for £580,000 in unpaid fees, has denied negligence.

It says unprecedented market conditions, including the unexpected rise of sterling against the mark and the influence of passive investors, were to blame for the poor performance of the fund.

- INDEPENDENT