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.