Give Me a Crash Course in . . . Digicel’s pulled flotation

What was all the fuss about Digicel yanking its initial public offering this week? For six months Denis O'Brien, Ireland's richest man, had plotted the flotation of about 40 per cent of the equity shares in his telecoms company Digicel. It was set to be the second-biggest stock market listing in the US this year, but on Tuesday he pulled the plug just days before the shares were due to debut. It represented a snub from investors and was a blow to O'Brien's reputation, given his past business successes.

Why was the IPO abandoned? O'Brien blamed recent stock-market volatility, saying that the price Digicel would have to accept for the shares would undervalue the business. But it could just be that investors thought it was overpriced or had other reservations about the business, which is heavily indebted. Given the volatility in markets and some negative sentiment towards Digicel, O'Brien might also have been concerned that the share price would drop after flotation, a fate Eircom suffered after its first IPO , in 1999.

How much did O'Brien want for Digicel? The company had set a price of $13-$16 a share, but investors were unwilling to meet this target. At the midpoint of that range, the sale of shares would have raised $1.8 billion (€1.6 billion). Although he was surrendering 40 per cent of the equity, O'Brien would have retained 94 per cent control of the business through special voting shares.

Has he lost out on a big payday? Not really. O'Brien wasn't due to benefit financially from the IPO, other than some millions of dollars from advisory fees due to one of his companies. Digicel had earmarked €1.3 billion of the proceeds to pay down some of its $6.5 billion debt, with $400 million planned for acquisitions. But an IPO would have put a tangible value on O'Brien's holding in a private company that he owns almost outright. Based on the midpoint of the share-price range indicated to investors, O'Brien's stake would have been valued at about $2.7 billion after the IPO.

What is Digicel? It's a telecoms company that O'Brien and his associates founded in 2000. The following year it began operations after securing a mobile licence in Jamaica. It now has businesses in 31 countries in the Caribbean, Central America and the Pacific islands, with 13.6 million subscribers. It is attempting to diversify into data, broadband and cable television, so it can offer customers a so-called quad play of services – fixed line, mobile, broadband and TV.

Has it been profitable for O'Brien? Digicel, which has an annual revenue of about $2.8 billion, lost $157.6 million in the year to the end of March. It has been a cash cow for O'Brien, paying him $1.1 billion (€976 million) in dividends in the past three years.

What does he do now that the IPO has been scrapped? O'Brien told CNBC this week that it was business as usual, saying that the company would look again at a flotation, possibly next year. He added that Digicel's growth plans would be unaffected by its failed IPO plan, that it had sufficient growth to press ahead with its expansion plans, and that it had no major debt maturity until 2021. But Digicel bonds traded down after the IPO was pulled, and analysts suggest that the holders of its debt might be nervous about the company's position. Time will tell what the lasting effect of this is for Digicel and Denis O'Brien.