Refusal to sponsor K Club event cost US bank millions

A US bank lost out on millions in corporate finance fees because it refused to sponsor the Smurfit European Open.

Merrill Lynch, one of the world's largest investment banks, was dropped as an adviser on the €3.8 billion takeover of Jefferson Smurfit Group when it would not sponsor the annual golf tournament at the K Club.

Madison Dearborn Partners (MSP), the US leveraged buyout company which is acquiring Smurfit, is understood to have asked Merrill Lynch to sponsor the golf tournament at a reported cost of €15 million.

Merrill Lynch was advising MDP on the takeover.

Such deals are not uncommon in large transactions, where the fees run to millions. However, Merrill Lynch's management has dropped such arrangements recently in order to boost profits.

As a result, Merrill Lynch declined to sponsor the Smurfit European Open, because doing so would more or less have wiped out their share of the €38 million in advisers' fees which the deal is expected to generate.

The US bank subsequently ceased to be an adviser on the transaction, which is now being handled by Deutsche Bank. However, the German bank said yesterday that it was not a sponsor of the Smurfit European Open.

The Straffan (Co Kildare) golf and country club is owned by Jefferson Smurfit Group and is seen as a pet project of the company's chairman, Dr Michael Smurfit.

Smurfit Group has poured millions of pounds into sponsoring the European Open over the last few years. The payback will come in 2006, when the K Club hosts the Ryder Cup, one of the most prestigious events in the golf calendar.

Dr Smurfit is currently building a €6.3 million mansion beside the K Club golf course.

The businessman has been criticised in the past for treating what is essentially a company asset as his own property.

The Smurfit European Open is seen in golfing circles as Dr Smurfit's project, although ultimately the company picks up the tab. It now appears that plans for this tradition to continue under Smurfit's new owners have come unstuck.

Dr Smurfit is a participant with MDP in the takeover of Jefferson Smurfit, which will see the company give up its listing on the Irish Stock Exchange. He will remain on as chairman, with a salary package worth €16.5 million over six years. He will also realise some €230 million from the sale of his stake, but will reinvest €55 million in return for a 7 per cent stake in the company.

Merrill Lynch, Madison Dearborn and Jefferson Smurfit declined to comment when contacted by The Irish Times yesterday.