Big business bust-ups offer Joe Public a ringside seat

IT IS a fact of life that interesting information falls out of big business when big business falls out. The action being taken by Irish businessman Paddy McKillen against the Barclay brothers over control of the five-star Maybourne hotels is a perfect example of this.

The legal action centres on a good old takeover battle, which is always guaranteed to get the creative juices of capitalists flowing.

This one pits McKillen, a 36 per cent owner of the Claridges, Berkeley and Connaught hotels, against Daily Telegraph owners David and Frederick Barclay who control the rest.

The case is dripping with colour. There are meetings in Sardinia, the Café de Paris in Monte Carlo, Doha and the Swiss resort of Gstaad involving some of the most media-shy businessmen in Ireland and Britain.

There is a £900 million takeover bid by Sheikh Hamad, prime minister of Qatar, and his son, Sheikh Jassim, though a state fund, as well as interest from the royal family of Abu Dhabi and the Malaysian prime minister whose sovereign wealth fund bid £1 billion.

There is the involvement of the National Asset Management Agency, whose day-to-day dealings with the property tycoons who (with others) sank this State only emerge in courtroom battles. Nama sold the £660 million (€800 million) loan on the hotels to a Barclay company – a transfer that gave them a massive advantage in the takeover battle and which McKillen now claims is unlawful.

There is a “loan” of €500,000 to Irish businessman Derek Quinlan, one of the prolific investors of the boom, from the Barclays to pay his living expenses, though they say this had nothing to do with their interest in his 35 per cent stake in the hotels.

And then there is the involvement of the late Brian Lenihan who, as minister for Finance in February 2011, received a letter from Aidan Barclay, son of Sir David Barclay and head of the brothers’ UK operations, to inform him that a deal had been done on the hotels with the Qatari fund, Al Mirqab.

The Barclay letter, submitted in evidence, refers to “Mr Barclay’s understanding that Sheikh Jassim’s father, the prime minister of Qatar, had spoken to Mr Lenihan over the course of the past weekend”, the filings state.

The 2004 takeover of the hotels is one of the well-told tales of the Celtic Tiger years. A group of debt-rich Paddies, led by Quinlan, wiped the eye of a cash-rich Arab to buy some of the most sought-after hotels in the world.

The takeover battle now tells a part of the story about Ireland’s economic collapse and the mess left afterwards. The dispute can be traced back to Quinlan’s financial difficulties. A court filing outlining his case offers a one-dimensional and self-serving view of how big Irish property investors came unstuck.

“The consequences of the economic crisis for Mr Derek Quinlan were severe. Like many other Irish investors, he found that the value of his assets was very considerably reduced, and that his creditors’ approach had radically changed. This result in severe liquidity problems for him,” the filing says.

There is no analysis of the investment decisions he made – or of the vast debt he borrowed; his problems simply arose from circumstances changing around him.

This has become the mantra of many Irish investors and certain politicians – everything would have been fine if the world had not changed and Lehmans had not collapsed.

Apart from the big-picture read that can be taken from this case, the way in which big business figures interact is among the more interesting aspects to emerge.

Text messaging is the communication means of choice for deals running to hundreds of millions of pounds. Quinlan’s adviser Gerry Murphy tells Sir David Barclay by text message that his client will support the brothers “in every way possible”.

Barclays director Richard Faber texted Nama manager Paul Hennigan to tell him to ignore a proposal from McKillen and suggested another approach on refinancing Nama debt that would help the brothers’ side.

As far as the Irish public purse is concerned, one outcome of the case is that the €800 million of debt on the hotels could return to Nama on the basis that it shouldn’t have been sold to the Barclays’ company.

Given the evidence showing the huge interest internationallly in the hotels, selling the debt at par value to another party in a “loan-to-own” deal shouldn’t be a problem.

In the meantime, the case is revealing plenty of colourful backroom dealings that would otherwise have remained hidden.