It resembled Night Of The Long Knives, interpreted by Darcey Bussell.
This morning’s blood-letting at Independent News & Media was certainly choreographed impressively.
With the former Sunday Times business journalists Rory Godson and Paul Durman orchestrating the PR for Independent News & Media, you’d expect nothing less.
Sir Anthony O’Reilly will retire as chief executive in May. Ivan Fallon, chief executive of INM UK, has been ‘removed'(as the Guardian puts it) from the company’s main board. And dissident invest Denis O’Brien has been given three seats at the top table.
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In return, O’Brien has effectively allowed Gavin O’Reilly to succeed his father as chief executive of INM.
This settlement is nicely symmetrical. But it follows the worst kind of Punch & Judy antics. Don’t for a minute believe the honeyed words that were poured over a Dow Jones Newswire correspondent by Gavin O’Reilly this morning.
Discussing a recent meeting between his father, himself and Denis O’Brien, this is what Gavin O’Reilly had to say:
“What changed was that we all got together and sat in a room last November. There was far more that united us than divided us. Tony and Denis had never met before. They struck up a very friendly relationship … He and Denis gave their clear support for me as CEO-designate.”
Oddly, this makes O’Reilly Snr. and Denis O’Brien sound like long-lost brothers reunited over tea and scones amid much family rejoicing.
The realities of this soap opera have been far harsher. This morning, the headline at Bloomberg pointed us in a more reliable direction: ‘Independent News CEO O’Reilly to retire; shares soar.”
Typically, the world gets more than seven weeks’ notice of a chief executive’s impending retirement. In the case of a figure like Sir Anthony O’Reilly, you’d expect a year; perhaps six months as a minimum. Naturally, those months would be filled with retrospective speeches and glowing profiles in the press.
So why isn’t O’Reilly getting the full treatment? Assuming that ill-health isn’t a factor (it would surely have been mentioned), the answer probably has a lot to do with INM’s need to repay a €200m bond in May.
INM doesn’t have the money to repay its debt. Confronted with narrowing options, the company has reportedly approached its banks to negotiate a further loan. This should allow it to repay the bond.
Apart from enforcing penal interest rates, the bankers will have insisted on a settlement between O’Reilly and O’Brien.
Further lending to an debt-laden business troubled by infighting between executives and shareholders was simply not going to happen. Not even in Ireland, where bankers really do qualify as flexible friends to the Golden Circle that runs the show.
On this basis, O’Reilly’s departure suggests that his differences with O’Brien were irreconcilable.
Accordingly, Sir Anthony O’Reilly will effectively end his 36 years at INM by leaving through the equivalent of the tradesman’s entrance. In his hands, he’ll be clutching a letter of appointment to the sinecure of president emeritus at INM.
It will be a sad farewell for a man who defended the Independents when many thought they had breathed their last.
Of course, the conventional wisdom suggests that O’Reilly’s departure will weaken the bonds between INM and its London papers.
But an interesting irony may yet unfold. It seems to me that O’Brien’s repeated criticism of INM’s ownership of the Independents was partly intended to prick O’Reilly Snr.’s apparently grandiose pretensions.
Now that peace has been restored, a different reality may come into focus.
On Today this morning, Gavin O’Reilly pointed out that O’Brien’s demand for the Independents to be sold was made ‘at a time when Denis and ourselves weren’t talking to each other. We’ve spent the last five months working with Denis.”
The Indys are ‘not [for sale] at this stage,’added O’Reilly.
This may be no more than a recognition that selling the Indys for £1 (or something similar) will do nothing to reduce INM’s debts.
Accordingly, the key question becomes whether INM’s other businesses can continue to compensate for the losses being incurred by the Independents. During the next year, much will depend on whether these shortfalls start to drag INM toward a breach of its banking covenants.
To understand whether this is the case, we need to know how far and how fast INM’s profits collapsed in Australia, Ireland and South Africa during 2H08.
In 1H08, operating margins at these businesses were healthy enough: 22.7%, 23.6% and 25.4% respectively. At 3.6 (and rising), the overall ratio of net debt to EBITDA at INM was uncomfortable, but not necessarily terminal.
All of these numbers will have deteriorated during 2H08. The important question for the Independent is by how much.
We’ll find out when the company reveals its full year results for 2008 on 24th April.
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