Inside the world of business
Could Anglo sink as role of Quinn lifeboat is reduced?
THE ANNOUNCEMENT by the Quinn Group yesterday that it has “reluctantly come to the conclusion” that it should sell its insurance subsidiaries seems to be a final act of hubris.
Quinn Insurance has been on the block since it was taken over by court-appointed administrators at the request of the Financial Regulator. The idea that the Quinn Group could halt any sale they orchestrated is simply far-fetched.
But the running up of the white flag in regards to the insurance business is likely to crystalise a few of Quinn Group’s other problems, not least how it will restructure its debts.
The group must this year refinance €1.2 billion worth of debts owed to a syndicate of bank and bond holders. The Quinn family, who own the group, have debts of €2.8 billion owed to Anglo Irish Bank and secured on their shares in the group.
The plan – until yesterday – involved a complicated debt-for-equity swap involving Anglo, which would have provided funds to allow Quinn Group to refinance Quinn Insurance and retake control of its cash cow. Anglo appeared to be under pressure to do the deal – as was the regulator to along with it – because it offered the best chance of keeping the group, which employs more than 5,000, intact.
That deal is presumably off the table and Anglo is released – or partially released – from its putative role as lifeboat for the Quinn Group.This in turn may have some bearing on the rethink under way about the wisdom of keeping the bank going at a putative cost to the taxpayer of €22 billion. Several factors seem to be playing into this rethink, not least the European Commission forcing the Government to face up to the reality that any capital put into Anglo will never be repaid and must be treated as spending and thus in turn be added to the national debt.
This removes one of the arguments for keeping the bank going – that its debts can be kept off the Government balance sheet. With Anglo’s role as the Quinn Group’s lifeboat also reduced, the wind-up of the bank now looks even more likely.
In your dreams, EBS
THE MATERIAL accompanying building society EBS’s results this week includes two paragraphs pointing out that it was founded by a group of teachers who worked together to help each other buy their homes.
“The idea was simple,” it says, “people coming together to realise their dreams of home ownership as members of a mutual building society.”
It adds that the society’s purpose is the same today as it was back in 1935 when those teachers began working on making their dreams a reality.
Well, arguably, it is not the same, nor has it been for some time. Along with most of the other banks, EBS jumped into commercial property lending, a speculative move far removed from what building societies are supposed to do. It did nothing on the scale of Anglo, or even its fellow mutual, Nationwide, but the venture still cost it more than €80 million in writedowns last year, and the taxpayer could ultimately have to fork out €875 million to ensure it meets new solvency rules. That could buy a hell of a lot of dreams.
Either way, it looks like the mutual status that is supposed to underpin its ethos is unlikely to last. The society has been in talks for a few weeks with Cardinal Asset Management, whose backers include Nick Corcoran and Nigel McDermott, the men behind the Mallabraca consortium that began circling Bank of Ireland in the dark, final quarter of 2008.
It will take Government approval to enable Cardinal to take over all, or a substantial part, of EBS. Whatever Corcoran and McDermott’s motivations, they are unlikely to include helping teachers, or any one else, to realise their humble dreams of home ownership, unless of course, those dreams can deliver a return for their private-equity investors.
C&C sale raises spirits
C&C’S ANNOUNCEMENT yesterday that it has lined up a buyer for its spirits division came as no huge shock to the market. However, the cash price negotiated of €300 million took many by surprise, as it far exceeded expectations.
The price was a full €100 million higher than the “sum-of-the-parts” valuation arrived at by Goodbody. As a result the stockbroking firm upgraded the company’s share price target from €3.45 to €3.75, while Dolmen pushed its target up as far as €3.90.
The stock actually came pretty close to that target yesterday, tipping €3.83 at one point, although it had settled back down to €3.60 by the close.
Davy described the consideration as “an excellent price”, while Bloxham said the sale was “hugely positive” for C&C.
Not only did the group achieve a great price, which will considerably strengthen its balance sheet by reducing its net debt, but the disposal of its spirits and liqueurs division will streamline its business strategy. Following the completion of the sale, C&C will be positioned as a “pure play” long alcoholic drinks (LAD) business, focusing on cider and beer.
The disposal will also leave it in a position to seek out attractive assets and brands to support its growing LAD business.
The latest off-trade data from AC Nielsen is also positive, showing that cider sales have been on the rise in April. Now all C&C needs is for the recent fine weather to continue.
NEXT WEEK:
CRH, Kerry Group and Smurfit Kappa will all hold agms, while Aer Lingus will issue an interim management statement.
Attention will also fall on Nama chairman Frank Daly, who is due to address a Leinster Society of Chartered Accountants lunch on Wednesday.
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