Battle lines at Dunloe Ewart being drawn

The battle lines are being drawn for Wednesday, and beyond. On one side is solicitor Mr Noel Smyth, who built Dunloe Ewart into an all-Ireland property company and is now trying to privatise it. On the other side is Zoe property developer Mr Liam Carroll, who has built up a 13 per cent plus stake in the company; so far he has not contacted Dunloe and his intrusion is likely to be viewed as hostile. And lurking in the corner, is outsider Orb Estates. Mr Smyth and Mr Carroll are unlikely bedfellows. Both have run their own operations and neither is likely to concede power to the other.

So what's it all about? The net asset value of Dunloe Ewart provides part of the answer. According to Dunloe Ewart's last valuation, the shares had a net asset backing of 67 cents at the end of June. That was after an estimate for tax and the real figure is probably well ahead of 70 cents but that would be realised only as some of the developments mature.

Contrast that with the 51 cents privatisation offer. And that offer consists of only 34 cents in cash; the remaining 17 cents is in unsecured loan stock which many investors are apprehensive about. Indeed, that is the reason a number of institutions, such as Bank of Ireland Asset Management, sold their holdings on Wednesday to Vantive Holdings, the company used by Mr Carroll to make the share purchases. Vantive has built up its stake, mostly at an average of 68 cents, and that was all cash for the sellers. Some shares were picked up at an average of 46 cents.

Mr Carroll appears to have three main options - staying in as a passive investor, trying to do deals with Dunloe Ewart's portfolio, or making a takeover bid. Ending up as a passive investor and participating in the revamping of Dunloe Ewart as a private company would hardly suite his style, but cannot be ruled out. He is more likely to reject the privatisation proposals at Wednesday's court meeting - the scheme of arrangement is being held under the approval of the High Court. Shareholders will have to answer two separate resolutions. First, do they agree to the scheme of arrangement? Second, do they accept or reject the offer? A condition of the scheme is that Mr Smyth ends up with more than 50 per cent of the issued share capital, post the scheme. Mr Smyth and his wife will not be voting in respect of their 22.5 per cent holding so there is a possibility that the scheme could be rejected if Vantive, and others, vote against.

In that scenario Dunloe Ewart would be almost £0.5 million poorer because of the fees involved. And it would still have to sell some of its properties to funds various developments.

Mr Carroll, the largest developer of apartments in the State, has moved into commercial development, so Dunloe Ewart's portfolio must have some attractions. However, becoming a joint developer for a number of the properties is probably not on because of existing joint venture agreements. British Land, for example, is a joint developer of the Cherrywood site at Loughlinstown, Co Dublin. It is also understood to have an agreement to develop the potentially lucrative Sir John Rogerson's Quay development.

Crucially, British Land is thought to be the joint venture partner which will be involved in a number of other ventures. These will go ahead regardless of the outcome of Wednesday's meeting. In the event of a showdown, Mr Smyth could muster well in excess of 30 per cent to fight any intrusion from Mr Carroll (and others), whose intentions should be clearer by Wednesday. But if there is a firm takeover bid at 51 cents or over, from Mr Carroll, or Orb, Mr Smyth would be placed in a very awkward position. How, for example, could he, in his fiduciary role, say no to a better offer than the privatisation offer? And that same privatisation offer is being recommended by the non-executive directors, and is being accepted by the four executive directors, Mr Philip Byrne, Mr Timothy Kenny, Mr Noel Murray and Mr Barry Gilligan.