BUSINESS OPINION:ONE RATHER salient fact seems to have been overlooked in the brouhaha over Denis O'Brien and his supposed ambition to take over Independent News Media. And it is that the Government already has an effective power of veto over Mr O'Brien – or anyone else for that matter – buying the company.
The veto arises out of INM’s restructuring in 2009 under which control of the company was ceded by the rival Tony O’Reilly faction to its bondholders and its banks.
It is the banks that are relevant in the current context because, under the terms of the restructuring which saw eight banks roll over some €745 million of debts, the following condition was included in the agreement: “If one or more persons acting in concert gain control of the company (control being defined as 35 per cent of the maximum number of votes that may be cast at a general meeting of the company), a lending bank is not to be obliged to fund further utilisation and can declare outstanding borrowings immediately due and payable.”
What this means is that no one can take control of INM without the approval of the banks unless they can refinance its debts.
INM’s debts have been very significantly reduced to €427 million but raising the finance to take them out would still be very difficult in the current climate, certainly on the basis of the company’s current trading. The group last month reported a 5.6 per cent fall in underlying revenue for 2011 due to “very challenging trading conditions” in Ireland.
The terms of the restructuring combined with the trading position in effect give the banks the power to prevent Mr O’Brien increasing his stake to the level – 50 per cent plus – required for board control.
At present the banks appear to favour the status quo which sees the O’Reilly camp in the ascendent and Gavin O’Reilly the chief executive. As long as that remains the case there seems little more that Mr O’Brien can do other than continue to snipe from the sidelines. Other shareholders may support his efforts to oust Mr O’Reilly as chief executive in June on the basis they agree he is not performing, but they are unlikely to support a full boardroom coup that would see Mr O’Brien take control while remaining a minority shareholder.
It seems that if he is to succeed in wresting control he must gain control of 50 per cent of the shares and this can only happen if he succeeds in persuading the company’s banks to switch sides and let him do so. This is where it gets interesting because prominent among INM’s banks are AIB and Bank of Ireland. The Government owns AIB and has a significant stake in Bank of Ireland.
The other banks listed in the group’s recent annual report are ANZ Banking Group, Barclays Bank Ireland, BNP Paribas, KBC Bank Ltd, Lloyds Banking Group and Ulster Bank .
The relative size of the banks’ holdings is not disclosed but, even if AIB and Bank of Ireland’s share is relatively small, they should still have the ability to block any effort by O’Brien to do a deal as most syndication agreements operate on the basis of unanimity.
In theory AIB and Bank of Ireland operate at arms length to the Government, with its ability to intervene in day to day matters governed by a framework agreement.
However, these agreements all give the Government the the right to intervene on matters of public interest. The ownership of the State’s largest media group and its implications for media diversity would tick the public interest box in most democracies.
And this is where it gets really interesting because the the Government’s rights as a shareholder in the banks would be exercised by the Minister for Finance who ultimately holds the shares.
Where it gets really, really interesting is that the Minster for Finance is, of course, Fine Gael’s Michael Noonan, whose party would appear to have far more affection for Mr O’Brien than their coalition partners Labour.
This all puts the anxiety being shown by Labour in recent weeks over Mr O’Brien’s potential media hegemony in a different light. And in particular it offers a very different interpretation of their apparent determination to see Pat Rabbitte, the Minister for Communications, given the power to veto any attempt by O’Brien to take over INM.
Labour would appear either to be unaware of the indirect veto available to the Coalition or else not confident that, if it came down to it, their partners would exercise it.
