Ambitious GPA forced to abort flotation in a few short hours

 

On June 18th, 1992 Guinness Peat Aviation (GPA), a group operating out of Shannon Airport leasing planes to commercial airlines, planned to launch the biggest public flotation in the history of the Irish Stock Exchange.

It was potentially so large it would have accounted for 20 per cent of the stock on the ISEQ Index. The shares were to be floated simultaneously on the London and New York stock exchanges.

In just a few short hours, however, GPA's plans had unravelled spectacularly. It left a company which had just posted profits of £164 million (€208 million) facing financial crisis.

Market reaction was swift, with GPA being roundly condemned for suddenly abandoning the flotation. On the morning of the proposed flotation, Schroders, GPA's UK advisers, were reporting positive noises about the share offer coming from UK investors, prompting GPA to raise the offer from 80 to 85 million shares. But the mood quickly turned sour with news of flagging interest in the US.

The company's chief executive, Mr Maurice Foley, sent urgent communiqués to the company's head office in GPA House, Shannon, Co Clare, warning that the flotation had crashed and burned on the London Stock Exchange.

GPA and its advisers cited a number of reasons for the withdrawal including concerns over a fall in the equity market the previous week; difficulties with a number of share offerings in the US; and a price war in the American airline industry. There was also concern coming from different quarters that the London Stock Exchange's decision not to list GPA on its FTSE 100 index would lead to the stock being bypassed by large investors.

Mr Foley later said the buoyancy of the New York Stock Exchange at the beginning of 1992 led advisers to push for an early flotation. GPA resisted the temptation and opted instead to go for a more international offering. In the intervening period, the US equity market fell considerably.

GPA had failed to win over investors, particularly fund managers in Japan and the US, despite a hectic promotional tour by the company's founder and then chairman Dr Tony Ryan which was intended to boost investor confidence in the venture.

There were concerns that most of the shares would not be taken up by major institutional investors providing strong capital support but instead by small private investors. The concerns were well founded, as the grade of investor GPA had hoped to attract were not enticed by what it called the "giveaway" price of $10.

In Japan where subscription reached a disappointing 56 per cent the bulk of the shares were subscribed to by individuals. Curiously the company had set a lower limit of 200 shares as an entry point for investors.

In a statement announcing the decision to withdraw from the flotation, Dr Ryan said: "GPA has been a consistently profitable growth company for 17 years. It would be unwise to proceed with the offer in circumstances which are adverse to both the company's and shareholders' interests."

The withdrawal left GPA precariously over-committed with ancillary costs and massive legal bills. The company was eventually bailed out a year later by the US giant General Electric (GE), which secured the right to acquire up to 65 per cent of the troubled company. A result was the dilution of existing shareholders' stakes by two-thirds.