When he gets on his feet at Ardagh's extraordinary general meeting on Wednesday Paul Coulson will hopefully have some explaining to do. One would like to think that at least one shareholder will have a question or two for their chairman about the background to the demerger they are being asked to approve.
The most obvious question is why they should approve the demerger which values the company's glass making assets at €1.10 per share, when a rival glass company, Quinn Group, is prepared to offer €1.70 per share for the same assets?
They might also want to know why the document sent to them detailing the demerger makes no reference to a plan for the demerged company to buy a German Glass company Hermann Heye. This deal, which was agreed on the same day as the demerger proposal was announced, should significantly enhance the value of the demerged entity. Yet its existence only emerged a week ago in newspaper reports, prompting a hurried stock exchange announcement from Ardagh
It all boils down to one question really. Is Mr Coulson - through his Yeoman vehicle - engaged in asset stripping. There are a couple of reasons why shareholders might think this. Under what is proposed, the glass making assets - Rockware in UK and Consumer Glass in Italy - will be spun off into a Guernsey-based company to be called Ardagh Glass Limited. Shareholders will get one share in Ardagh for every share they have in the plc. Yeoman, as a 23.33 per cent shareholder in Ardagh plc, will have a similar stake in the Guernsey company.
Yeoman and Anglo Irish Bank will then provide the finance for Ardagh Glass Limited to buy out its shareholders at €1.10 per share. Yeoman - obviously - will not be a seller and expects to see its stake rise to 40 per cent or higher as others cash out.
Yeoman is adamant, however, that there is nothing in the financing arrangement that would give it additional leverage over the Guernsey company. But a couple of other factors could add to its influence.
The first is a convoluted set of conditions attached to the Ardagh Glass shares which make it all but impossible for anybody else to acquire more than 5 per cent of the company.
The second is that Ardagh plc's option to acquire Hermann Heye from Yeoman will transfer to the demerged company. It seems reasonable to assume that whatever funding arrangement Ardagh Glass comes up with to fund the €35 million deal, it will not diminish Yeoman's influence.
It seems equally reasonable then to assume that one of the consequences of voting for the demerger is that Yeoman will take control of the profitable glass making side of the business. But before you conclude that this is tantamount to some form of asset stripping you should bear in mind that most of Ardagh plc's €262 million in debt will transfer over to Guernsey-based company.
Ardagh plc will be left with around €2 million in debt, its residual glass packaging operation and the lease on its Ringsend site. This lease runs until 2066, but the company is currently in litigation with its landlord - Dublin Port - over whether it can be used for anything other than its current purpose. It is hard tovalue on the remaining business, but it is presumably safe to assume that its worth more than €2 million.
Before making asset stripping allegations you would also need to establish that the price being offered is less than the market value. This at least would appear to be the case, given that the Quinn Group has offered €1.70 per share for the glass making assets, and this presumably does not include the option to buy the German business, which must have some value. But you do not even need the Quinn Group's bid to establish that €1.10 is not a fair offer for the spun off assets. The company itself has said as much by rejecting the Quinn offer and going on to say that the true value of the assets in question is nearer €6 per share, and a long way from the market price of €1.63.
Bizarre though this may seem, it is this valuation that forms the basis of Mr Coulson's defence against allegations of asset stripping and his justification for claiming the demerger is in shareholders' interest. The low rating attached to Ardagh plc by the market makes fund-raising both expensive and difficult.
The real purpose of the proposal being put to shareholders - according to Mr Coulson - is to allow the development of the profitable part of the business. As a private, Guernsey-registered company, the glass making operation will be able to access private equity markets and take advantage of opportunities such as the Heye deal.
The reason that shareholders are being offered the chance to cash out at a derisory €1.10 is that one large shareholder has insisted on an exit. HgCapital, the British venture capital company appears prepared to get out at €1.10, the reason being - according to Mr Coulson - that the Ardagh investment is held in a fund that must be liquidated. In the interests of fairness the other shareholders are also being offered the chance to exit on the same terms. But should they want to stay on as small shareholders in a private Guernsey-registered corporation they are more than welcome.
Shareholders have little to lose by taking Mr Coulson at his word and staying on board. With 54 per cent support in his back pocket he will probably carry the day on Wednesday, But before jumping into bed with Yeoman, shareholders should bear two things in mind.
The first is that whatever else Guernsey is famous for it is not corporate governance and they will have to pursue any grievance they might have through the Guernsey courts.
The second point is that Yeoman have been less than completely upfront about the Hermann Heye deal and the information flow to shareholders can only be expected to get more constricted once glass making assets are demerged.
jmcmanus@irish-times.ie
