THE ASHCROFT AFFAIR: How two tycoons cooked up a secret deal to help the Tory party

AS THE champagne flowed at Rupert Murdoch's Christmas party last Thursday, Baroness Thatcher was deep in conversation with the editor of The Times newspaper, Peter Stothard.

Other guests at the tycoon's penthouse overlooking Green Park, in central London, raised eyebrows. The Times had been out of favour with the former prime minister since the Tory treasurer, Michael Ashcroft, launched a libel action against it in July over allegations relating to United States Drug Enforcement Administration files on him.

Most of those present did not know it at the time, but yesterday they realised the friendly chat was a sign that a deal was on the cards.

"It was remarkably amiable," one observer said yesterday. "Margaret and Denis Thatcher are friends of Ashcroft, and they were very angry with The Times."

There were several guests who knew what was happening, or at the very least must have been able to read the runes. William Hague, the Tory leader, and his party chairman, Michael Ancram, will have had one eye on the conversation in the corner. Although Central Office sources denied yesterday that they had put any pressure on Mr Ashcroft to settle, their interest in the case must have been intense.

Two guests certainly knew what was happening. The first was Lord Bell, formerly Lady Thatcher's favourite public relations man and now handling media affairs for Mr Ashcroft. He had been approached by the latter for advice on the deal but is believed to have argued that since he was likely to win the libel action, he should press ahead with it.

The second was Jeff Randall, editor of Sunday Business. Mr Randall - a former employee of Mr Murdoch and friendly with both him and Mr Ashcroft - had already acted to get the two sides talking.

Just 10 days ago, neither The Times nor Michael Ashcroft were talking publicly of peace. Last Tuesday, they were in court trying to thrash out a date for the libel case. According to the Ashcroft camp, tentative talks had already begun, although sources at The Times say the decision to negotiate was not made until Tuesday.

Although both sides had been bullish since the legal action started, with Times journalists confident they had ample new material on Ashcroft and the latter equally sure he could win damages on the allegations of drugs and money-laundering, it had become clear the case was going to drag on. It was also clear that the main allegations by The Times would not hold water.

More importantly for Mr Ashcroft, the trial date was receding fast into next autumn. Access to the judge, Mr Justice Morland, had been difficult because he was also sitting in Neil Hamilton's libel case against Mohamed Al Fayed, and The Times's QC, Geoffrey Robertson, was due to go away for an extended millennium break.

It looked increasingly likely the case would take place in October, possibly during the Conservative Party conference. Worse, by then pre-election fever would be running high and the last thing Mr Hague would want was more "sleaze" allegations filling the newspapers. Mr Ashcroft - possibly after discussions with other senior Tories, although Central Office denies this - agreed that his team should put out feelers.

Not being personally acquainted with the Murdoch side, beyond a single breakfast meeting with Mr Stothard before The Times's campaign began to roll, Mr Ashcroft needed a go-between.

Two such fixers immediately presented themselves: the first was Lord Bell; the second was Mr Randall, known to both men. In a move highly unusual for a journalist, particularly the editor of another newspaper, Mr Randall arranged a meeting between them. Later, they spoke on the phone several times.

Last Friday, the day after Mr Murdoch's party, he met his editor to discuss the deal. Mr Stothard, happy that it contained no promise of an apology or payment of damages, was then left to complete the negotiations himself. By Wednesday, a statement was ready for publication.

And so, yesterday, both sides were claiming satisfaction. "Michael's name has been cleared. Now he can get on with his business and with being treasurer, and The Times can go back to being a newspaper," a spokesman for Mr Ashcroft said.

Mr Stothard said he believed the deal was good for both sides. The case might have been the costliest libel action in history, he told a radio interviewer as he dismissed suggestions that he had been left out of the negotiations.

"To say I was excluded from it or that Mr Murdoch imposed a statement on an unwilling editor is nothing but an-all-too-common fantasy," he said.

Mr Randall, who is rumoured to covet a Murdoch editorship, said in a separate radio interview that the deal was an "equal score draw". His aim in bringing the two sides together was to cut the lawyers out, he said. "It was most important to keep the lawyers out. Lawyers are a stumbling block to resolutions in libel affairs. That was the key to it all," he said.

He could not comment on Mr Stothard's feelings about the fact that the deal was done by Mr Murdoch. But despite rumours that The Times's editor might be on his way out, he was greeted as a conquering hero at a party in the Reform Club on Wednesday night. There was applause when he announced the deal and his deputy, John Bryant, toasted Mr Stothard's success.

Times journalists were buoyant about the deal, claiming it would not preclude further exposes of Mr Ashcroft's affairs.

Certainly, no promise was extracted on future reporting of the Tory treasurer's dealings. But the real winner in the affair will not be known for several days, or even weeks. If it becomes apparent that The Times has been silenced, Mr Ashcroft can toast himself with the celebratory glass of champagne that he missed when Mr Murdoch left him off his party list.