More a case of survival than of winning or losing

Thu, Dec 31, 2009, 00:00

A bleak January set the tone for the darkness to come. Jobs were lost, heads rolled and companies crashed, writes LAURA SLATTERY

IT’S TIME for Business This Year’s annual round-up of winners and losers in the business world. After 12 months of agms, egms, IOUs, BBs and DNRs, 2009, wasn’t so much a case of winners and losers; rather there were escape artists, tenacious survivors, walking wounded and so many candidates for “do not resuscitate” orders that pretty soon the corridors of corporate power had almost entirely yielded their populace to the courtrooms of commercial doom. Didn’t it all go so fast?

So, to January, in many ways the bleakest month of 2009 and one that set the tone for the darkness to come. Dole queues were swelled by the largest number on record, while there was a grim competition between the ephemeral arena of bubble- era banking and the traditional world of labour-intensive manufacturing to see which could produce the year’s first business catastrophe.

The latter edged it when Waterford Wedgwood sank into receivership, after sources of new funding evaporated and the company failed to find a buyer in time. Receiver David Carson eventually shut down manufacturing at Waterford Crystal’s Kilbarry plant, where 800 people were employed, prompting a seven-week sit-in by workers.

Private equity group KPS Capital bought the company in March, but this was no white knight. The Kilbarry furnace was switched off, the machinery made the voyage to eastern Europe and the final 170 Waterford Crystal workers got their notice in August. Some 1,800 former employees have been left pensionless.

The Waterford collapse cost Sir Anthony O’Reilly and his brother-in-law Peter Goulandris some €400 million – an investment they had ploughed into the company in the desperate, futile attempt to help it tread water.

Through Independent News & Media’s (IN&M’s) ownership of the London Independenttitles and the Sunday Tribune, O’Reilly was already an experienced proprietor of unprofitable ventures. But with advertising revenues dried up and Denis O’Brien fired up, 2009 was also to mark the end for his reign at IN&M too.

His exit from the IN&M board in March was, The Irish Timeswrote, the end of an era in Irish commerce and the end of a remarkable career. After 36 years at IN&M, O’Reilly left the company under siege from “dissident” investor O’Brien, who brokered his exit while installing three of his lieutenants on the board.

The O’Reilly-O’Brien antagonism was all “water under the bridge”, IN&M’s new chief executive, Sir Anthony’s son Gavin O’Reilly swiftly declared. It didn’t quite work out that way. The various IN&M factions spent the rest of 2009 fighting off the demands of the bondholders to whom they owed €200 million.

Following a restructuring of the company’s share capital, the nameless, faceless bondholders now have a 48 per cent stake in Ireland’s biggest media group, while the year ended with the confirmation that IN&M has entered talks with Russian businessman Alexander Lebedev about the sale of the London titles. The empire built by Sir Anthony is, like the rest of the media sector, in retreat.

It was a strange, fitful year for O’Brien. When he wasn’t watching the IN&M share price languish and staging more musical chairs in its boardroom, he was pulling his Boxer consortium out of digital terrestrial television.

Citing “prevailing and anticipated economic circumstances”, Boxer left it to the Eircom-backed One Vision to go through the no-doubt delightful process of securing a transmission agreement with RTÉ.

Most of O’Brien’s attention was not on exploiting the forthcoming analogue switch-off, but on fire- fighting the even more imminent arrival of the Moriarty tribunal’s report on its investigation into whether money changed hands before former minister for communications Michael Lowry awarded the mobile phone licence to O’Brien’s consortium, Esat Digifone, in 1996.

In something of a pre-emptive strike, O’Brien gave a series of newspaper interviews in July in which he called the tribunal “out of control” and revealed that it had made 60 findings against him. This was “a very dark period for justice. It’s Burma,” he explained, raising the hitherto unexpected vision of O’Brien as an Aung San Suu Kyi-like figure.

O’Brien’s Sandwich Bars (no relation) never made it quite as far as Burma. The one-time Irish franchising success story was liquidated in October, after its novelty shaped “shambos” and thick-cut triple-deckers fell out of favour with brown-bagging consumers and those pesky upwards-only rent reviews kept costs unsustainably high.

For Brody Sweeney (below), who founded the chain after being inspired by a visit to Subway on a trip to New York in the 1980s, this was an ignominious conclusion to his reign as one of Ireland’s most name-checked entrepreneurs.

There is always politics to fall back on for the former Fine Gael election candidate, although after defeat at the polls in 2007, Sweeney told The Irish Timesthat he “definitely won’t go again”.

It was partially internal politics that was the undoing of former Aer Lingus chief executive Dermot Mannion, who found himself sitting in an ejector seat with his name on it in April.

The airline’s “cash burn” problem and fallout from the axing of the Shannon-Heathrow service were among the headwinds; the board’s apparent lack of confidence in his continued services provided the fatal turbulence.

Mannion departed Aer Lingus mere months after being forced by the usually disharmonious trinity of Ryanair, trade unions and Minister for Transport Noel Dempsey to sacrifice his €2.8 million golden parachute.

Seán Coyle, the Aer Lingus chief financial officer who eventually followed Mannion out the door, was similarly deprived of his golden goodbye.

Officially, Mannion said his decision to step down would “allow a new CEO to bring fresh thinking and new ideas” to Aer Lingus. But given the chaotic state of the airline sector, it remains to be seen whether that will be enough to save his successor, Christoph Mueller.

Funnily enough (although probably not for him), it was losses on Aer Lingus shares that had put one of the first dents in the personal wealth of über- developer Liam Carroll, who in 2009 firmly cemented his position as the biggest loser in the property crash.

The financial obliteration of the developer class was already in train by the start of the year, as profit built on bricks, mortar, favourable rezoning decisions and credit on auto-tap gave way to empty- shell develop- ments, frantic refinancing and insolvency solicitors on auto-dial. For lookers-on, the reversal of fortunes went way past schadenfreudeterritory, straight through “car crash” and bang smack into outright national tragedy.

Taxpayers were faced with the unhappy spectre of the National Asset Management Agency (Nama), unveiled by Brian Lenihan on the day of the April “supplementary” budget. Nama is destined to become home to loans on unsold shoebox apartments, unloved hotels and unfinished shopping centres – all were specialities of Carroll.

His bloated, unwieldy network of property vehicles made for very long court transcripts when the time came for ACCBank to oppose bids by his insolvent Zoe group for court protection.

Having lost the first bid, Zoe made a second attempt to get out of ACC’s clutches, on the grounds that Carroll, his judgment compromised by stress, withheld a three-year business plan and updated property valuations from the court the first time around. However, the Chief Justice Mr Justice John Murray ruled in October that evidence that Carroll’s judgment had been significantly impaired, or impaired at all, was “at best, tentative and conjectural”.

As the Supreme Court upheld ACC’s claim that the companies had no reasonable prospect of survival, it was game over for Carroll (as indeed it was for so many other developers, that Business This Year has compiled a separate round-up of Ireland’s construction losers on page 5.

The man who facilitated much of the debt, former Anglo Irish Bank chairman Seán FitzPatrick, tried to keep as low a profile as possible – not easy when you have Prime Timesticking a mic under your chin. In October, gardaí visited the headquarters of Anglo Irish on Stephen’s Green and took away electronic material as part of an ongoing investigation into possible company law breaches at the bank.

The Office of the Director of Corporate Enforcement and the Garda Bureau of Fraud Investigations has been conducting an inquiry into operations at the bank for much of 2009. No charges have yet been brought against anyone for anything – despite Minister for the Environment John Gormley’s stated desire to see suspected white collar criminals “led out in handcuffs”, US-style.

Instead, Anglo’s nationalisation in January sparked a wave of boardroom departures. Anglo non-executive directors Gary McGann (Smurfit Kappa chief executive) and Ned Sullivan (Greencore chairman) had interlocking directorships with those of FitzPatrick: they sat on his boards and he sat on theirs.

The Anglo affair was an example of what corporate consultants Grant Thornton labelled “camaraderie over competence”. McGann and Sullivan – along with Anne Heraty, Noël Harwerth and Michael Jacob – resigned from the Anglo board; by the end of February, 15 directors had resigned from 23 boardroom positions in the fallout and Brian Lenihan was soon promising to ban cross-directorships.

None of the resignations was as telling as that of Patrick Neary, the financial regulator, who quit the field in January. Neary and his organisation proved an easy if justifiable target for criticism from a Government that had itself encouraged the now notorious “principles-based” financial supervision espoused at every turn.

Principles were in short supply in the banking sector, where it was all change at the top. Well, almost. In no particular order, the contestants through to the next round are Fergus Murphy (EBS chief executive), Gillian Bowler (below), Irish Life Permanent chairwoman, and, um . . . that’s pretty much it.

Not that Business This Yearwould describe all the departed chief executives and chairmen as losers, mind. Richard Burrows, former chairman of Bank of Ireland, stopped earning his living from toxic property loans and plumped for toxic chemicals instead, landing the position of chairman of British American Tobacco (BAT), the world’s second-biggest cigarette maker.

How did Bowler cling on after the unorthodox transaction scandal that claimed the scalp of IL&P’s chief executive Denis Casey? By perfecting the art of contrition and claiming that “someone had to stay on and clear up the mess”. But while the corporate loose ends entangling the bank were serious, IL&P was in a position of relative financial strength (compared to the Nama banks).

Relative financial strength was not, sadly, an attribute of the company with which, as founder, Bowler was best known – Budget Travel. Countless babies have been born as a result of Budget Travel’s cheap packages in the sun, but in November, the final 172 livelihoods sustained by the company were lost when it ceased trading and went into provisional liquidation.

Helpline numbers for stranded passengers were duly dispatched; winter sun bookers joined the queue for refunds from the Commission for Aviation Regulation. As with O’Brien’s Sandwich Bars, time had run out for this Celtic Tiger icon.

Time also ran out for Smart Telecom when an examiner was appointed in August. Kingspan co-founder Brendan Murtagh had taken a 20 per cent stake in the company in 2006, but the investment proved to be less than clever: in 2009, it was the rescuer who had to be rescued. Dundalk- based rival Digiweb has now stepped in to buy Smart, which otherwise faced liquidation.

In court, the company said its difficulties were due to the legacy of legal disputes, general inability to meet its business plan, historic uncertainty about local loop unbundling pricing, the slowdown in residential construction and the general economic slowdown. That just about covers it.

There was no time added-on for the UK parent of Setanta Sports. Its British channels stopped broadcasting in June and the UK arm went into administration, after the Premier League and the Scottish Premier League (SPL) pulled the plug on its prized football rights after a series of missed payments.

For Irish founders Leonard Ryan and Michael O’Rourke, this was the end of the dream to build Setanta into a serious pay-TV rival to BSkyB. For Setanta’s investors, it was the last they would see of about €500 million.

With so many household names hitting the decks, it was the best of times, it was the worst of times . . . actually, it was just the best of times for Ireland’s phalanx of corporate rescuers, examiners and liquidators.

The commercial court heaved. The same bankers that had engineered the merger and acquisition frenzy of the boom were now busy carving up and selling off the unprofitable entities they had helped fuse together. Was there anyone who didn’t require their services?

In truth, bona fide winners in 2009 were predictably few. As with most years, it’s hard to look past Ryanair boss Michael O’Leary. When he wasn’t having fun winding up British media with threats to charge for the toilets, he was having even more fun winding up the ultra-earnest Declan Ganley. O’Leary and Ryanair emerged on the winning “Yes” side of the Lisbon referendum in October, albeit having spent almost €500,000 on the campaign. That’s a lot of baggage charges . . . well, okay, a few.

It was a year with plenty of competing expert opinions on what should be done to fix the banks, but given Ireland’s history of recruiting from the inside, there are few advisers and commentators who actually get the chance to show in practice how things could be done better.

Trinity economics professor Patrick Honohan became such a person when he was appointed governor of the Central Bank in September, taking over from a retiring John Hurley.

Honohan is a man with “no airs or graces and no arrogance”, according to a colleague, which is sure to make him stand out from the crowd. More pertinently, his research interests include systemic financial distress and the fiscal costs of dealing with banking crises.

Although his preference for a “risk-sharing” mechanism was sidelined in the Nama legislation, Honohan is undoubtedly one of 2009’s winners – whether he feels that way himself in 12 months time is another matter.

But the glitterball trophy for money-spinning business ventures had only one contender and its unassuming name is Web Reservations International (WRI).

The business, founded in 1999 by technology entrepreneur Ray Nolan and backpacker hostel owner Tom Kennedy, was sold for $340 million (about €230 million) in November to San Francisco firm Hellman Friedman.

This was the single-largest company exit of the past decade in Ireland, surpassing the likes of Iona Technologies and StockByte, and it was a major pay day for Nolan and Kennedy.

Nolan, a computer programmer who set up his first company at the age of 22, said that he hadn’t rushed out to spend any of the $100 million or so that he has banked over the years from WRI.

So, as 2009 fades into 2010, the champagne’s on him.