Not for him some bid “war room” in Dublin plotting the downfall of INM and its chief executive, Sir Anthony O’Reilly. Instead O’Brien was in Barcelona with almost 60 other “stags” celebrating the impending marriage of his old school friend Kieran O’Reilly.
While the Dublin market was swept by rumours, and brokers salivated at the prospect of a heavyweight battle between two of the country’s richest men, the telecoms tycoon was sauntering down the Ramblas, enjoying some Spanish winter sunshine. If O’Brien’s intent was to leave everyone guessing about his intentions — including O’Reilly — he succeeded with style.
“Everyone’s wondering what O’Brien’s playing at,” said one Dublin dealer. “He’s either done it to piss off O’Reilly, as a long-term investment, or to build up a strategic stake in the company to get some representation on the board.”
According to reliable market sources, O’Brien built his INM stake over three months through an intermediary, identified in the market as a former Goodbody broker, David Sykes. He has been buying the stock in small slices, mostly at prices between €2.20 and €2.50.
O’Brien’s decision to declare his stake to the Irish stock exchange suggests that shadow boxing, rather than an imminent strike, is on his mind. Opting to reveal his hand at 3.01% when stock exchange rules allow him to amass a 5% stake before coming out in the open has convinced some analysts that there might be less to this than meets the eye.
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On the face of it the odds are stacked against O’Brien treating his holding as anything other than an investment. He would have to pay €1 billion just to gain a controlling shareholding in INM, the company already has €1 billion worth of debt on its books and O’Reilly owns an effective blocking stake of 28%.
While the evidence suggests this is nothing more than a case of one rich individual investing in a company owned by another, there are two salient points that lead the story in another direction.
One is the long-rooted enmity between two very different Irish billionaires. The other is the modus operandi of the younger man. “Denis O’Brien is just not known as a passive investor,” said one senior Irish stockbroker. “I would guess that he has some sort of longer-term vision. I think it’ll be a slow burner, though.”
That view is shared by one of O’Brien’s closest confidantes. “Denis would never waste his money. He’s making the investment for some purpose.”
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THE appearance of O’Brien on the share register has thrown a light on INM and O’Reilly’s 33-year old stewardship of the company. O’Brien’s move has coincided with a fresh bout of activity within the European media sector. If there is a game plan, rather than a “vanity” investment, most of the analyst money is on a potential break-up of the group.
Last week, the American-based investment fund Harris Associates revealed that it had built up an 8% stake in Trinity Mirror, which publishes the Daily Mirror. “Harris is well known to be an activist shareholder and there is a view (Trinity Mirror) would be worth more if its national and regional titles were split into two different companies,” said a London-based media analyst.
Harris also built up a stake in the American newspaper group Knight Ridder over the past six months and was instrumental — along with a few other shareholders — in forcing the company to put itself on the block.
With Daily Mail and General Trust also selling its regional papers, analysts believe that unlocking value will be a big theme for the sector this year — particularly as Britain and continental European newspapers grapple with a weak advertising environment and migration of classified advertising from print media to the web.
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Interest in some of these groups is being driven by the belief that they have underperforming assets and that means underperforming shares. INM, though, is currently trading at a premium to many of its European peers. “You don’t have a situation in INM where you have a lot of value that’s not been looked at by the market,” said a Dublin analyst.
INM has a 40% stake in the Australian regional newspaper group APN valued at about €560m, as well as assets in South Africa, Britain and India. Its Irish operations, valued at up to €1.3 billion, remain the most valuable part of the group.
London analysts wax lyrical about the stock’s attractions. “The real issue is that Independent stands out in contrast to most European media groups — particularly UK ones — with its good growth prospects and decent dividend yield,” said one.
A potential driver for a break-up could be market concerns over succession. “Sir Tony certainly doesn’t seem to be willing to concede the reins to his children yet. He had an ideal opportunity in 2004 to hand it over to his son Gavin when he separated the roles of chairman and chief executive. He could have bowed out as chairman but he gave that role, instead, to Brian Hillary,” said one Dublin-based analyst who asked not to be named.
“It could be that O’Brien is trying to pre-empt the possibility that it will come up for sale at some stage and that he could buy it or benefit from the break-up,” he continued. “With a dividend payout of about 10c a share expected on 2005 earnings, that equates to a yield comfortably more than 4% — which would more than cover the cost of any borrowing.”
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THE enmity between O’Reilly and O’Brien goes back at least a decade. The pair first went head to head in a government-sponsored beauty contest for the state’s second mobile phone licence in 1995. Round one went to O’Brien, whose consortium surprisingly edged out the bigger name contenders, including O’Reilly. To rub salt in, the young tyro pocketed €300m when British Telecom paid €2.54 billion for Esat Telecom in 2000. O’Brien had paid just €15m for the licence.
The rivalry between the pair was laid bare later in the Moriarty tribunal’s probe of the licence award. At the tribunal, Michael Lowry, the former communications minister, recounted how O’Reilly had invited him to his box during a race meeting at the Curragh and impressed upon him his “standing as an international business leader”, telling the minister he “expected” to win the licence.
Lowry recounted his belief that O’Reilly was “incandescent with rage” when O’Brien triumphed and this led directly to the famous “payback time” front-page, anti-government editorial in the Irish Independent on the morning of the 1997 general election. O’Reilly “totally rejected” the former minister’s version of events.
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Round two was staged during the battle for Eircom in 2001. O’Brien opened the bidding for the fixed line operator only to be trumped by O’Reilly and his venture capital partners. Crucial to O’Reilly securing the deal was an agreement with union leader Con Scanlon and the employee share ownership trust (Esot). It was a shrewd and entirely above-board move but it still rankled with O’Brien.
“Denis thought the whole thing was a stitch-up,” said one former adviser. “The unions fell hook, line and sinker for O'Reilly. Denis was proven right in the end in terms of how the investors took money out of Eircom. The deal was sewn up between Esot and O’Reilly.”
When union boss Con Scanlon emerged as deputy chairman of the now privately held Eircom, alongside O’Reilly as chairman, it only served to heighten O’Brien’s sense of injustice.
O’Brien has also drawn considerable personal flak from the Independent stable over the years. He has alleged that both he and his company have been the subject of “outrageous attacks” and has contrasted this with what he calls the favourable treatment afforded O’Reilly’s “ragbag of investments”. The newspapers’ financial journalists have rejected this charge vehemently.
There have been attempts at detente. In 2003, O’Reilly sent a letter to O’Brien, then chairman of the organising committee of the Special Olympics, congratulating him on the success of the games. In the letter, O’Reilly recalled memories of his and O’Brien’s fathers swimming as seniors at Blackrock baths in Dublin. O’Brien responded with a litany of grievances about the Independent’s coverage of his business.
OUTWARDLY, the O’Reilly response has been more blithe indifference than concern. Without a trace of irony, a group spokesman said INM “welcomed new shareholders”. This chipper mood may be explained by the fact that the company’s shares are up more than 7% on the week, boosting O’Reilly’s personal fortune. Following their midweek surge the shares fell back marginally on Friday.
O’Brien, having sniffed at but walked away from both NTL and Meteor last year, is facing some manner of credibility test. The stag party is over but the fun and games at INM might be about to take off.
TALE OF THE TAPE
SIR ANTHONY O’REILLY
Total Assets: €1.6 billion
Age: 69
Home: Lyford Cay, Bahamas
Sparring partners: George Soros, the Goulandris family, Providence Equity, Goldman Sachs
Favourite corner man: Kyran McLaughlin (Davy)
Recent form: Hot. Just doubled the value of his 26% stake in the Indian newspaper group JPPL, which is due to float at the end of this month
DENIS O’BRIEN
Total Assets: €450m
Age: 47
Home: Quinta do Lago, Portugal
Sparring partners: Carlyle Group, Permira, CSFB
Favourite corner men: Paul Connolly, Peter Crowley (IBI)
Recent form: Confident. His Caribbean Digicel operations are expected to post revenues of $550m (€453m) in the year to next March. Its rising value will push him up wealth rankings