Major egos and life for Ireland's property elite before the fall have been on display in London's High Court, writes MARK HENNESSY
BRIGHTLY LIT, filled with rows of light, pine-veneered tables, Court 26 in the Royal Courts of Justice’s Rolls Building, off London’s Fetter Lane, is used to the big occasion. Earlier this year, Russian billionaires Roman Abramovich and Boris Berezovsky, who argues that he put the Chelsea owner on the road to wealth, battled over billions inside its walls. Since mid-March, a new cast of characters has occupied the cavernous room: Paddy McKillen, Derek Quinlan and, by proxy, the secretive billionaire twins Frederick and David Barclay.
Belfast-born property developer McKillen claims that he was improperly blocked from buying some of financier Derek Quinlan’s shares in three luxury London hotels.
The origins of the case lie in the purchase of the Maybourne Hotel Group in May 2004, a deal that marked the arrival of Celtic Tiger property investors onto the global stage. Then at his height, the deal for the Savoy, Claridges, the Berkeley and the Connaught was orchestrated by Quinlan, who invited McKillen to join when an extra investor was needed at the last minute.
Glen Dimplex founders Lochlann Quinn and Martin Naughton had been on the original list of investors but, unhappy with some of the terms, they decided not to go ahead.
Those who did, including Riverdance creators John McColgan and Moya Doherty, along with Seán FitzPatrick paid £110 million in cash, backed by £675 million of loans.
Quinlan paid £10 million for 20 per cent; McKillen, along with fellow developer Padraig Drayne, paid £25 million for 20 per cent; so too did property developer Peter Green’s family trust and the FitzPatrick-led group.
McColgan and Doherty had been interested in 20 per cent, but they lowered their ambitions to buying a tenth of Coroin – the holding company set up to buy Maybourne – for £12.5 million. Davy Stockbrokers’ Kyran Fitzpatrick took up 5 per cent left free by McColgan and Doherty for £6.75 million.
Quinlan, the Greens and McKillen divided the remaining 5 per cent between them. After the deal was signed at the London offices of solicitors DLA Piper and a four-page shareholders’ agreement drafted, Quinlan recalls going to Claridges.
“I had a shower there and, when I emerged, I noticed that the hotel management had, without any prompting, run an Irish flag up the flagpole at the front of the hotel,” he said, in his witness statement for the trial.
FADED GLORY
Eight years on, McKillen and Quinlan agree on little, but they are at one in believing that the hotels – each a landmark in London – were even then far past their glory days. For Quinlan, the Savoy’s basement was “in an appalling state”; while staff in Claridges were working in conditions that “were beyond archaic”.
McKillen agreed: “Within roughly the first week of the completion of the purchase of the Maybourne Hotel Group, I visited the Savoy and was horrified at the condition of the hotel.”
In late 2004, the Savoy was sold to Saudi Arabia’s Prince A1-Waleed – whom the Quinlan consortium had outbid for Maybourne in the first place – following a meeting on board a yacht in the south of France between the prince, Quinlan and McKillen, and McKillen’s friend, U2 singer Bono.
By December 2004, says Quinlan, Seán FitzPatrick and his colleagues had become “increasingly anxious” to exit, says Quinlan, unhappy that the rest wanted to keep the other three hotels.
Under the shareholders’ agreement, a seller wishing to depart had to offer the original partners first refusal – the so-called “pre-emption clause” that has dominated the court case.
The FitzPatrick-led group’s shares were divided between Quinlan, Misland (the Green family trust), and McKillen, even if the latter was unhappy about the price paid.
By degrees, the hotels were refurbished; Mr McKillen took a hands-on role, even choosing carpets and bedlinen and picking a new front-door for Claridges.
In early 2008, McColgan and Doherty departed the scene, getting £23 million for the 10 per cent stake that had cost them £12.5 million four years before.
The previous year, McKillen’s partner Padraig Drayne had left; though his stake was taken over by McKillen alone – a subject that is now an issue of dispute. In 2007, according to Quinlan, McKillen said Drayne was not being paid for the shares and therefore pre-emption did not apply. Instead, “there would merely be a realignment of partnership interests in jointly-held property”.
Last year, Quinlan says, he learned that McKillen had in fact paid Drayne £14 million, along with taking on a €22 million Anglo-Irish loan of Drayne’s. Quinlan alleges that he and the other shareholders were “deliberately misled”. McKillen denies the charge.
A proportional division of Drayne’s shares in 2007, when Quinlan says he had “large amounts of available cash and bank finance”, would have raised Quinlan’s holding in Coroin to 38.91 per cent, McKillen’s to 19.45 per cent and Green’s Misland to 26.6 per cent.
In the background, the debt underpinning the deal needed tending (see panel below).
ENTER THE BARCLAYS
The owners of the Ritz Hotel in Piccadilly, the Barclays, were interested in Coroin from as early as 2009, though efforts by one of the brothers, Frederick, to contact McKillen failed, leading Barclay to comment that McKillen “was one of the hardest men” to find. The two finally met in the Ritz in October 2010, but the meeting did not go well after Barclay reprimanded the concierge for letting McKillen in without wearing a tie. McKillen felt he was being looked down on.
“Once we sat down, he told me that the Ritz had a very strict dress code and that normally people are not allowed to enter without a tie. I felt he intended to cause me embarrassment. It was not a good way to start the meeting,” says McKillen.
For his part, Quinlan’s relationship with the Barclays – forged after he signed over a Chelsea building in late 2006 to a charity for children with learning disabilities of which David Barclay was patron – blossomed. By the summer of 2010, Quinlan and the Barclays shared morning coffees weekly in Monaco’s Cafe de Paris:
“Our conversations would cover anything and everything, ranging from family life and Ireland to European politics and business. Many times Sir David said, as a friend, that if I ever needed help I only had to ask,” says Quinlan, who later received from them a £500,000 loan, while his wife, Siobhan, received £1 million in 2011, perhaps significantly more. By late 2010, the Green family wanted out “arising from the fact that the financial positions of the two largest shareholders (Mr McKillen and I) had greatly deteriorated,” says Quinlan.
In January 2011, a Barclays company, B Overseas Limited, bought out the Greens, leading to the arrival of Richard Faber as a Coroin director.
McKillen was livid, arguing that the pre-emption rule had been ignored. Before the Greens left, they had favoured a Malaysian offer – one of a series that came from wealthy investors, all keen to hold prized London assets. Investors from the Gulf, India and Singapore had also made approaches.
Also in January, a Barclay company, Ellerman, bought Bank of Scotland Ireland debt secured on 22 per cent of Quinlan’s stake. A further 13.3 per cent Quinlan shareholding, given as security for Anglo-Irish loans, was held by Nama.
Two weeks before, Quinlan had pulled away from a £825 million Qatari offer, after the Qataris stunned Gerry Murphy in Doha, telling him McKillen would get the full price for his shares, but that Quinlan would get £100 million less than was due to him.
Eventually, the Qataris withdrew the threat, but Quinlan had by then signed a month-long exclusivity deal with the Barclays that led to control over, if not ownership of, his shares in the hotel group. McKillen was outraged.
Throughout the current court case, McKillen has argued that Quinlan from that point on was an agent of the Barclays, doing nothing to hinder their attempt to control the company and everything to help.
BEGINNING OF THE END
In the months that followed, tempers frayed further, particularly after McKillen refused a joint Qatari-Barclays offer that, he says, began with him holding the swing vote between the two.
In the end, the terms changed, with the Qataris and the Barclays agreeing to merge their proposed 41 per cent stakes, leaving McKillen with the same 18 per cent share, but now facing a unified bloc rather than holding the whip-hand.
For the Barclays, McKillen’s demand for a £5 million annual management fee was the dealbreaker, leading Richard Faber to pronounce acidly that he doubted if a professional project manager would have cost as much, “let alone an amateur like Mr McKillen”.
On the sidelines, Nama, one of the respondents in McKillen’s case, had problems galore. It held not only Quinlan’s personal debt, but also the £660 million lent by Anglo-Irish and Bank of Ireland that had funded the rest of the deal in the beginning.
Quinlan’s personal debt was sold by it in April 2011 to Malaysian investors, though it was later bought by the Barclays’ B Overseas company following a complicated deal involving billionaire property developer Robert Tchenguiz.
Unhappy about demands from McKillen and others to extend the £660 million Coroin loan for up to two years, Nama determined to offload it as quickly as possible, becoming ever more concerned about the feud inside Coroin.
The Coroin debt was eventually bought from Nama by another Barclay company, Maybourne Finance Limited, on September 23rd last year. McKillen claims he was given just 57 minutes’ notice.
Nama, however, remains unapologetic. Giving evidence last month, one of its executives, Paul Hennigan, said there was “nothing” that anyone in Coroin “could have said, or done” to stop Nama proceeding.
“Nama believed with justification that the Barclay brothers’ offer would be the only time that it could reasonably expect to be offered the full amount for the Coroin debt,” he told the judge.
MASERATIS AND YACHTS: THE FIGHT FOR FUNDING
BY 2008, Coroin’s finances needed tending, leading to Project Orb – a plan to sell the Berkeley, but to continue managing it. It would, says Quinlan, have left Coroin “effectively debt-free”.
Project Orb saw the group’s various shareholders look to the Gulf after Ian Buchanan, representing the Greens, suggested talks with Abu Dhabi’s ruling family, the Al-Nahyans. Quinlan, meanwhile, opened links with Qatar’s prime minister, Sheikh Harnad bin Jassim bin Jaber Al Thani.
Following the financial crisis triggered by the collapse of Lehman Brothers, Quinlan and McKillen were exposed, leaving both to suffer the transfer, or threat of transfer, of some of their debts to the National Asset Management Agency.
Relations, which had never been warm, deteriorated.
By 2009, Quinlan – who “hates conflict”, according to his associate Gerry Murphy – had stopped attending Coroin board meetings, believing that the others were intent on humiliating him. Meantime, the need for refinancing became ever more acute. The Greens’ vehicle, Misland, approached US hedge fund Northbrook, while McKillen contacted another US fund, Westbrook Partners.
In April 2010, Buchanan, on behalf of the other shareholders, told Quinlan – who had spent nearly half of the previous year staying in the hotels – not to stay any more until a near-£300,000 bill was paid, close to half of it relating to accumulated interest.
McKillen shared Buchanan’s view, if more colourfully; later telling Frederick Barclay that Quinlan had “sat around on his fat ass running up expensive hotel bills while I did the majority of the work”.
Quinlan had become desperate to sell, but he believed he would get the best price if the entire company was sold, an action that later led to serious dispute with the other partners, who said he was touting Coroin to buyers. By doing so, Quinlan was damaging the hotels, McKillen argues: “[He] was a distressed seller, and if the hotels were being offered alongside a distressed shareholding, it also suggested that the hotels were in difficulties.”
From here, the story becomes a tale of meetings on yachts or palaces with Gulf billionaire princes; lunches, or coffees with cigars in Monaco with the billionaire Barclay brothers, along with well-timed leaks to the press.
Everywhere, “sidebar” fees were evident. Quinlan was offered £50 million as a side payment to make one work; he demanded £30 million for another; while McKillen sought £5 million a year from Qatari investors.
In June 2010, Quinlan and Gerry Murphy went to Mougins in the south of France to meet Qatari prince Sheikh Hamad: “When we arrived there, there was a rather nice Maserati waiting for us. Mr Quinlan and I were admiring the quality of the leather in the car as we drove to Mougins to meet the [prince]. I said if this project gets legs, we will call it Project Maserati. Then I decided, no, we will call it Project Maser,” Murphy told the high court before the genial, but razor-sharp Mr Justice David Richards this week.
WHO'S WHO AND WHAT'S AT STAKE
PADDY McKILLEN
The low profile Belfast property developer expanded from Ireland to Britain, Europe and the US in the 1990s. His profile was raised considerably in 2010 when he mounted a successful legal challenge to the way the National Asset Management Agency took over his €2.1 billion in loans from Irish banks.
DEREK QUINLAN
The former Revenue official was the poster child for international property investing during the boom. His Quinlan Private firm put together the syndicates behind a number of high profile deals including the purchase of the Irish Glass Bottle site, the Jurys Inns and further afield, the London headquarters of Citibank and the Madrid home of Banco Santander.
BARCLAY BROTHERS
Identical twin brothers Sir David and Sir Frederick Barclay live on a private Channel Island and have a diverse group of interests in media, retail and property. With an estimated worth of around £2 billion the self-made brothers are owners of Telegraph Media Group.
THE GREEN FAMILY
Manchester-born Peter Green bought into the hotel group through Misland, a vehicle for his family trust. With a background in textiles and grocery, he married the daughter of wealthy Bermuda-based businessman Sir Harold Mitchell in 1975. Much of his empire was sold off in 1996 but he retains a portfolio of business interests.
COROIN
Coroin was the company formed to acquire the Savoy, Claridges, Berkeley and Connaught hotels in London. Original investors included Paddy McKillen, Derek Quinlan, the Green family’s trust Misland, Riverdance creators John McColgan and Moya Doherty, Anglo Irish Bank chairman Seán FitzPatrick, developer Padraig Drayne and Davy’s Kyran McLaughlin.
