Brian Gaynor: Impact of Irish stoush may be felt Downunder

The donnybrook between Sir Anthony O'Reilly and Denis O'Brien has big implications for the major shareholder in APN, owner of the New Zealand Herald.

Sir Anthony's control of Independent News & Media is being hotly disputed by O'Brien, one of Ireland's most successful businessmen with an estimated wealth of €1.9 billion ($4 billion) according to the Sunday Times 2009 Rich List.

O'Brien has called an extraordinary general meeting of the Dublin-based company which could finally resolve the control issue and determine the long-term future of one of New Zealand's largest media companies.

INM is listed on the Irish Stock Exchange and has a market capitalisation of just €227 million ($470m).

It owns 32.2 per cent of APN News & Media, which is based in Sydney and is listed on the Australian Stock Exchange. APN has a market value of A$1.18 billion ($1.45 billion).

In New Zealand, APN owns the New Zealand Herald, Herald on Sunday, the New Zealand Woman's Weekly, the New Zealand Listener, a range of other magazines and regional newspapers, APN Online and APN Outdoor.

It also owns 50 per cent of The Radio Network, which has more than 120 FM and AM frequencies. These include Newstalk ZB, Radio Sport, Hauraki, ZM, Classic Hits and Coast.

Although INM owns only 32.2 per cent of APN it has influence over the Australia-based company and its New Zealand assets, because six of the 10 APN directors are either current or past directors of the Irish company.

The animosity between Sir Anthony and O'Brien goes back to 1995 when the two businessmen bid for the second Irish GSM mobile phone licence. The O'Brien consortium, which was 40 per cent owned by O'Brien, 40 per cent by the Norwegian state telecoms operator and 20 per cent by individual investors, was successful.

Esat Telecom, the successful bidder, was listed on the Irish Stock Exchange, London Stock Exchange and Nasdaq in 1997 through an initial public offering.

In 2000 Esat Telecom was the subject of a successful takeover offer from British Telecom (now BT Group) and O'Brien walked away with a substantial profit.

O'Brien's new company, Digicel, now has a large number of mobile phone operations in Central America, the Caribbean and Pacific, including Fiji, Samoa, Tonga, Papua New Guinea and Vanuatu.

O'Brien is active in this part of the world and has replaced Sir Michael Fay as a leading funder of Manu Samoan rugby. His aim is to stop New Zealand stealing the best Samoan rugby talent and he is quoted as saying "I hate bullies and New Zealand bullies the islands".

O'Brien also has interests in radio, aircraft leasing and oil exploration.

But the issue regarding the second Irish GSM mobile phone licence is far from over because Ireland has two strong characteristics, namely a tendency to have extremely expensive, long-winded public inquiries and an aggressive media that doesn't let go of controversial issues.

Those who claim New Zealand is blighted by the tall poppy syndrome haven't had much exposure to the Irish media, which makes our media look like spring lambs.

In September 1997 the Irish Government established an inquiry called the Tribunal of Inquiry into Payments to Politicians and Related Matters, otherwise known as the Moriarty Tribunal.

The tribunal, which is estimated by O'Brien to cost €200 million, has still to produce its final report but one of the issues it is looking at is that O'Brien had a close relationship with the Minister of Communications when the latter issued the country's second mobile licence in 1995. These include a donation made by O'Brien to the ruling political party at the time and alleged links with the Communications Minister in Spanish and British property transactions.

The Irish media, including Sir Anthony's INM publications, have not been restrained when covering O'Brien.

In 2003 O'Brien wrote to Gavin O'Reilly, Sir Anthony's son and now head of INM: "As far as I am concerned, Independent News & Media have spent the last seven years trying to destroy my reputation. Some of the coverage of my affairs, both business and personal, have caused hurt and enormous damage to my reputation, not to mention the emotional distress suffered by my wife, Catherine and my family."

Three years after this letter O'Brien began to purchase INM shares and he now owns 26 per cent, compared with 29 per cent held by O'Reilly family interests.

INM and O'Brien have had an acrimonious public dispute over the past two years. At first O'Brien made little progress, but this year it seemed that hostilities had come to an end when Sir Anthony agreed to stand down as chief executive after 35 years and three O'Brien nominees were appointed to the INM board.

Gavin O'Reilly replaced his father and the two parties agreed to sort out the group's debt problems and stop the public slanging match.

But O'Brien has gone on the front foot again in recent months, particularly over the proposed sale of South African assets, the future of the London-based Independent newspaper and delays in refinancing €200 million of bonds, which matured in March. Last weekend's British and Irish newspapers had long articles on a recent acrimonious telephone conversation between Gavin O'Reilly and O'Brien and the proposed extraordinary shareholders' meeting.

Among O'Brien's proposals for the meeting are the appointment of a new chairman, the sale or closure of the UK Independent titles, the company providing details of all directors' expenses since 2000, the cancellation of alleged annual payments of €300,000 to Sir Anthony and abandoning the proposed South African asset sale.

INM has responded by saying there are "no contractual obligations to O'Reilly with regard to his role of president emeritus and no payments have been made to him in this regard".

Unfortunately the bitter dispute between INM and O'Brien is like a failed marriage. Many of the developments, including O'Brien's proposed extraordinary meeting, are irrational and create further damage.

O'Brien has lost nearly €500 million ($1.04 billion) on his INM investment but Sir Anthony and INM are in weaker positions. The former rugby star has suffered huge losses at INM and Waterford Wedgwood, which has gone bust, while INM's earnings have slumped and it has far too much debt.

Sir Anthony is now paying a high price for his debt-fuelled expansion strategy, which was partly because of his reluctance to issue new equity and dilute his shareholding, and weak corporate governance. Until recently INM had 20 directors, some of them former prominent politicians in Ireland, the UK and Canada.

Institutional investors have abandoned INM, which now faces a number of decisions.

These include a rights issue or sale of its shareholdings in other companies, possibly including APN News & Media. O'Brien has said that he does not want to see the Australasian assets sold. Alternatively, receivership or examinership could lead to the sale of individual assets.

INM also now has to negotiate a widely publicised and antagonistic extraordinary meeting.

O'Brien, who is in a stronger position in the bitter conflict, may only be interested in holding on to the group's radio assets and its Irish publishing activities, which include the Irish Independent, Sunday Independent, Sunday Tribune and Evening Herald.

The control of the latter publications would give O'Brien the ability to defend his reputation from expected criticism by the final Moriarty Tribunal report, which is due before the end of the year.

Whichever way one looks at it INM's shareholding structure, which includes the indirect ownership of the New Zealand assets, is uncertain.

The prospect of a full or partial IPO of APN's New Zealand assets would be greeted positively, particularly as the NZX offers limited investment opportunities for domestic investors.

* Disclosure of interests: Brian Gaynor is an executive director of Milford Asset Management.