Independent News and Media finally published its annual report and accounts this morning, and at the same time, details of the planned restructuring of the group which will see its debt and pension liabilities rationalized. In Ireland, IN&M publishes the Irish Independent, Sunday Independent, Sunday World, Herald, Belfast Telegraph and Sunday Life plus a range of regional newspapers. Its biggest shareholder at 30% is Denis O’Brien. Billionaire Dermot Desmond and the O’Reilly family own a further 6% and 13% respectively.
The group is of interest on here for two reasons. Firstly, it reportedly has loans of €150m from AIB and Bank of Ireland – €80m at the former and €70m at the latter. Overall, IN&M had loans of €440m at 31st December 2012. We own 99.8% of AIB and we own 15% of the ordinary shares in Bank of Ireland and have a further €1.5bn of preference shares in that bank. And the second reason is IN&M is the most powerful print media group in the country and its biggest shareholder is a controversial businessman against whom the Moriarty Tribunal has made adverse findings which Denis O’Brien rejects.
The matter of greatest importance this morning was what was happening to the €440m of debt, though I should say the most surprising feature of the accounts here was that Irish revenues were down just 2% on 2011, from €363m to €355m, and that was an amazing and very impressive result, given the challenges to circulation and advertising. If you exclude exceptional items and pretend IN&M doesn’t have €121m of intangible assets, a massive pension deficit and excessive borrowing, its core business with operating profit of €60m and profit after tax of €29m doesn’t look too shabby.
But what is happening to the loans from banks which we own? Having read the press release this morning several times, I am unclear. RTE had the opportunity of interviewing the CEO of IN&M, Vincent Crowley, this morning and amazingly didn’t ask. Apparently Vincent gave an interview on Newstalk where he talked about a €138m debt writedown and indeed the press release refers to “conversion/write down” of “€138m (after payment of €40m and equitisation of €10m of debt) plus any accrued PIK interest” Reading the last slide in the press release this morning, it seems to me the maximum gross writedown could be €196m plus interest comprising a €32m writedown in Facility A, a €50m writedown on Facility B, a €116m writedown on Facility C plus interest on the loans that stood at €440m at 31st December 2012. IN&M was asked for comment and the response for the time being is to refer to the last slide in the press release this morning and the €138m writedown.
If the writedown is unclear, it is just as unclear what will happen to the different shareholdings in the company. The press release indicates that €40m will be provided to IN&M by its existing shareholders and that the banks will be given shares worth €10m or 11% of the company. Again this is unclear, and comment was sought from IN&M via its PR company.
But on the face of it, it looks as if the banks may forgive or write-down or write-off up to €196m plus interest or 44c-plus in the euro and are getting 11% of a company which had a market value of €20m yesterday. Meanwhile existing shareholders whose company was worth €20m yesterday are investing a further €40m and will keep 89% of the company. If you take the IN&M statement at face value, the writedown is €138m and the banks will get shares worth €10m or 11% of the company. But whichever is correct, it looks like a lousy deal for the banks with AIB and BoI writing off €66m+, €150m/€440m * €196m+, and getting a 3.75% stake in the company in return (3.75% = €150m AIB and BoI loans/€440m total loans * 11% stake to be given to the banks).
Last week’s Sunday Times Rich List ranked Denis O’Brien at position 2 in Ireland, with a fortune estimated at €4bn. If the above interpretation of the IN&M restructuring is correct, then I can see how Denis has come to be so wealthy, though I am scratching my head at why we still pay the Bank of Ireland CEO, Richie Boucher so much.
NAMA Wine Lake 
No doubt the public interest directors in AIB and BOI will inform us of how much the taxpaying residents of this country have gifted Messrs O’Brien, Desmond et al.
The option for the banks was to put in a receiver, get 100% of the company and sell it.
So why stick the Irish exchequer with a bill of ~50 million just to leave Denis O’Brien and Dermot Desmond, in charge and in clover?
Perhaps the question will be answered in 5 years time. On the other hand if the debt write down was not forthcoming… then a total loss for everybody would occur…. including those ungrateful journalist’s and media presenters.
I’m confused…
Could you expand on who’s included in “everybody”?
@ Kieran,
In this context of using the word “everybody” I am not referring to “everybody” on planet Earth, but referring to everybody who is involved in the “INM” system. By this I mean…
The employees, the creditors (banks), the people who own the banks (shareholders and in AIB’s case the Irish Govt), shareholders of INM, people who use the INM service such as visiting http://www.independent.ie etc
In this context “Everybody” is used within the boundaries of the INM system.
Simple answer as to why. The banks clearly didn’t have the appetite for a very public, controversial and potentially highly value destructive insolvency process. Equity knew this and played their hand accordingly. This is far from an uncommon situation.
from inmplc.com:
The Group Balance Sheet shows net worth (net liabilities) worsening from €22.8 million to €308.3 million.
Loss for the year was €244.8 million + additional non-core-item losses of €40.5 million = €285.3 million.
The note on the Exceptional Charge is as follows:
The Group recorded a Net Exceptional Charge of €273.7 million in 2012, the vast majority of which is non-cash. The charge includes a non-cash impairment charge of €117.8 million, which mainly relates to non-cash impairment charges of €50.4 million and €66.8 million arising respectively on intangible assets and property, plant and equipment in the Island of Ireland, which arose due to the continued economic downturn. In addition, an amount of €15.8 million was incurred in relation to restructuring charges across the Group’s operations. INM also incurred an exceptional charge of €150.9 million in relation to its associates and joint ventures. This mainly relates to a non-cash impairment charge of €135.8 million arising in APN, as a result of impairments in APN’s
New Zealand and Australian regional mastheads. These impairment charges are a result of the continuing economic weakness facing the New Zealand and Australian regional economies, as well as the structural changes continuing to impact those advertising markets. A disposal gain of €17.8 million arose on the disposal by APN of 50% of its interest in APN Outdoor Group Pty Limited. INM also incurred a charge of €24.0 million in relation to a goodwill write-off on the Group’s investment in APN. An exceptional tax credit of €19.4 million
arose due to a tax credit on the impairment of property, plant and equipment. 7
Deleveraging & Finance Charges. During the year, the Group reduced its Net Debt by €4.4 million as it continued to effectively manage its cash
and working capital commitments. In 2012 the Group’s net finance charge increased by €1.8 million (5.4%), which was mainly due to increased PIK interest on our Bank Facility and lower interest received in South Africa.