Shareholders to decide merits of Irish Press offer

Who would have thought Irish Press plc would ever propose a cash payment to its shareholders? As the holding company for Irish Press Newspapers, now dissolved, which published its three newspaper titles, that prospect always appeared distinctly remote.

Now, thanks to an exceptional gain from the sale of its remaining stake in Press Association (PA) and the part repayment of a loan, which led to a profit before tax of £1,262,000 in the year ended March 1998 (contrasting with a loss of £68,000 in the previous year), it has the free cash to make that gesture. However, at Wednesday's extraordinary general meeting, the shareholders will have to sanction a share purchase plan that will enable the cash payment to happen.

The company has decided to offer to buy back up to 100,000 ordinary shares, at 250p per share, from existing shareholders, with a weighting in favour of the smaller shareholders (20 shares or less). Chairman Mr Vincent Jennings explained: "The directors have been for some time anxious to return value to shareholders. After much consideration, they have decided that instead of a dividend it would be better to offer shareholders an opportunity to sell some or all of their holdings back to the company."

Those 100,000 shares represent 11 per cent of the equity. But Dr Eamon de Valera, managing director, who has a controlling 50.4 per cent stake, is excluded from the scheme, while the two other directors, who own 1,024 shares between them, are not accepting the offer. If these are excluded, the offer represents 22 per cent of the total.

However, as is not the case with dividend payments, shareholders who accept the offer will cease to be shareholders and to have their rights. Also, the remaining shareholders will have a bigger percentage share of what is left and of the future (if any) of the group. So how does the offer, described as "fair and reasonable" by the group, stack up?

Irish Press plc says the offer price corresponds to 81 per cent of the net asset value per share. That, however, is based on the "company" balance sheet and not on the "group" balance sheet. If the group balance sheet had been used, and if the market value (as at March 31st 1998) of the listed investments had been taken into account, the net assets per share would have risen from 306p to 344p. That means the offer price corresponds to 73 per cent of the real asset backing, and not the stated 81 per cent.

Shareholders, of course, can say no, and that is made quite clear by Irish Press plc. Also, the market value of the listed investments - these are not identified - could have gone down (or up) in the meantime. And as the group is generating less income (unless it has made a killing in trading its investments) than the group's running costs, then the likelihood is that the real net asset backing is now lower. The group appears to have been making an effort to cut down its running costs. The latest results show general expenses down from £421,000 to £341,000 - directors' emoluments, for instance, fell from £227,000 to £98,000. However, against that, and excluding the non-recurring items, investment income came to only £126,000. Even though the group balance sheet shows cash of £2.55 million and financial assets of £1 million, it is clear that the group cannot continue indefinitely with its current running costs.

As it has not so far moved into an alternative business, should it not therefore make a clean break and liquidate the company before the liquid assets are dissipated further? The group's assets consist essentially of the liquid, or near-liquid assets (fixed assets are valued at only £11,000), and 75 per cent of Irish Press Publication, which controls the newspaper titles. As the years go by, the value of the titles diminishes appreciably. There has been an expression of interest from one party and discussions with another party, but Mr Jennings has said: "It is too early to say whether either of these approaches will advance to publication and what part this company would have in such a venture."

In the absence of a sale (or participation), the titles must have only a nominal value. Assuming running costs are continuing to outstrip income, the net asset backing for the shares is now probably below 320p. Costs associated with a liquidation would bring this down to around 310p. Then there are the legal costs associated with its High Court action against investment bankers EM Warburg Pincus & Co International, which is scheduled for a hearing next year.

As any observer of court actions knows, it would be wrong to stitch an assumed outcome of that action into any financial equation. That holds true also for the claim for £893,408 against the group by the trustees of pension schemes.

Clearly there would be no bonanza from a liquidation (unless there is a big payout from the courts and/or titles), but that would be preferable to an erosion in the group's net assets. Equally, the offer price of 250p does look inadequate; 300p would have been more appropriate. Nevertheless, the offer to buy back shares appears to be a genuine attempt to return some value to shareholders - and the proposals should be viewed in that light.