Desmond builds up INM stake of over 2%

BUSINESSMAN DERMOT Desmond has quietly built up a stake of more than 2 per cent in Independent News Media in recent weeks.

It is understood Mr Desmond is the beneficial owner of more than 11 million shares in INM, which would make him one of the biggest shareholders in the group.

Denis O’Brien owns 21.6 per cent of INM, while Sir Anthony O’Reilly has a 14.7 stake. The company’s shares were trading at 58 cent in Dublin yesterday, giving it a market value of €319.2 million.

International asset managers Investec, Marathon and Pioneer are the other entities with stakes above 3 per cent – the level at which holdings must be notified to the stock market.

According to informed market sources, Mr Desmond has been acquiring shares in INM since the turn of the year, with this activity accelerating in recent weeks.

Much of this trading has been handled by NCB Stockbrokers through nominee accounts.

It is understood the beneficial owner of the shares is International Investment Underwriting (IIU), an IFSC-based vehicle controlled by Mr Desmond.

No comment was available yesterday from Mr Desmond or IIU.

It is not clear why Mr Desmond would choose to build a stake in INM at this time.

Market sources suggested he could see it as a value play, or he might be trying to position himself strategically in the event INM becomes a takeover target.

INM’s market value has plunged in recent years as the company has undergone a painful restructuring involving a debt-for-equity swap with bondholders.

INM is trading at about 37 per cent lower than a year ago. The shares were worth more than €15 each in May 2007.

Many analysts believe INM is undervalued, especially as its 31.6 per cent stake in APN News Media in Australia is currently worth €208 million.

Mr Desmond has previously held shares in a number of Irish public companies, including Greencore and Unidare.

He was also a 20 per cent shareholder in Esat Telecom, founded by Mr O’Brien, when it was sold to BT in 2000. He earned more than £100 million from Esat.

Separately, the three INM directors nominated by Mr O’Brien – Lucy Gaffney, Leslie Buckley and Paul Connolly – have indicated to the company they intend to vote against the receipt and adoption of the directors’ report and the financial statements at the annual meeting on June 3rd.

This “protest” vote will raise questions as to the relationship between Mr O’Brien and the O’Reilly family, which was fractious before a detente was agreed in 2009, in parallel with a major restructuring of the business.

The trio have disagreed with the INM board’s determination that fellow director Bengt Braun is “independent” as per the UK corporate governance code.

They have taken this view on the basis that Mr Braun and INM chief executive Gavin O’Reilly are both members of the board of WAN-IFRA, a global trade body for newspaper publishers.

They argue this is a “relationship that prejudices” Mr Braun’s independence, according to a letter by INM chairman Brian Hillery attached to the notice of the agm. The trio have indicated they will vote for all other resolutions, including the re-election of Mr Braun, who joined INM’s board in March 2010.

Mr Hillery said it was “regrettable” that the three directors had “taken issue with Mr Braun”.

“All other directors remain wholly satisfied as to Mr Braun’s independence,” Mr Hillery added.

DESMOND PORTFOLIO: FINANCIER'S OTHER STRATEGIC INVESTMENTS

Dermot Desmond’s recent round of share purchasing in INM stock could prove a prescient move. The financier has made a number of successful strategic investments in Irish companies.

* BARLOW: Having held 4.9 per cent of the radiator and plastics group through his investment vehicle IUU, Desmond steadily began building his stake in the company after details of a management buy-out offer were revealed in February 2004, increasing his stake to 19 per cent within weeks. Seán Quinn then bought 25.6 million of Desmond’s Barlo shares, equating to 15 per cent of the company, before launching a takeover bid for the company, netting Desmond a tidy profit.

* ESAT DIGIFONE: Desmond told the Moriarty tribunal that he made more than £100 million from his investment in Esat.

Desmond became a shareholder in Esat Digifone in September 2005, after Denis O’Brien had submitted his bid for the second mobile phone licence, which was subsequently awarded to Esat.

The following May the Department of Communications ordered that Desmond reduce his shareholding to 20 per cent. He sold his 5 per cent in equal portions to his two partners in the consortium, collecting £2.8 million. In April 1997 Desmond sold a further 10 per cent to his two partners, again with equal amounts going to Telenor and O’Brien’s company.

He subsequently reduced his shareholding by another 9 per cent, keeping one per cent.

This 1 per cent was eventually sold to BT at a hefty premium.

Overall, his investment generated him more than €127 million from the company in four years.

* GREENCORE: Desmond first bought into Greencore in late 1999 when he acquired a 5.3 per cent shareholding at a cost of about €30 million. In the months that followed he steadily built up his stake to become the companys largest shareholder.

In 2006, shortly before a decision by minister for agriculture Mary Coughlan on the carve-up of €145 million in EU beet compensation, Desmond sold his 21.5 per cent shareholding in Greencore to Liam Carroll for €170 million.

Some 42 million shares in the food group were sold at €4.05 each, a 9 per cent premium to the previous day’s closing price of €3.70.

In late 2009 Carroll’s then 29.9 per cent stake in the company was placed with 40 institutional investors at €1.35 a share by Ulster Bank.

* DUNLOE EWART: Desmond’s investment in property company Dunloe Ewart also paid off. He built up his stake in the company in the weeks before a takeover battle involving Noel Smyth and Liam Carroll.

Shortly after Smyths 42.5 cent per share offer for the company, launched in October 2002, Desmond declared he held about 7.8 per cent of Dunloe, which would have been acquired at or below 40 cents per share.

He subsequently purchased a further 9 per cent of the company, at prices between 43 cents and 45 cents per share.

Carroll bought the company at 50 cents per share. SUZANNE LYNCH