Devil in the detail of Tribune deal

Independent News & Media's agreement to convert £15 million (€19 million) in loans to Tribune Publications plc into non-voting preference shares is supposed to get rid of the perception that the publisher of the Sunday Tribune is under the control of Dr Tony O'Reilly, according Mr Gordon Colleary, the Tribune chairman.

Such perceptions are not unfounded given that Dr O'Reilly's company owns 29.99 per cent of the Tribune and has two of the four non-executive seats on the board. Mr Jim Farrelly, the current managing director, was until last year a senior executive with one of the Independent Group's regional titles.

This unusual situation arose after Dr O'Reilly tried to buy the Tribune in 1992 but was thwarted by the then minister for trade and industry, Mr Des O'Malley. As a result of Mr O'Malley's ruling, Independent could not increase its stake above 29.99 per cent, but the group has bankrolled the loss-making Sunday paper ever since, hence the £15 million in accumulated debts.

In return the Sunday Tribune has acted as a bulwark for Independent against British Sunday broadsheets, most notably the Sunday Times.

According to Mr Colleary, the Independent loans had extensive conditions attached to them and the company "could not sneeze" without the permission of Abbey Street. No such conditions apply to the new preference shares, he said. Hence the Tribune is free of Dr O'Reilly's influence.

That may be true, but what has not been highlighted is that as part of the deal, the articles of association of Tribune Publications plc will be changed in a fashion that helps copperfasten Independent News & Media's grip.

Post the restructuring, Tribune Publication's issued share capital will consist of 2.89 million ordinary shares, held by current shareholders - including Independent - and something in the region of 60 million preference shares held by Independent Newspapers.

Although they are described as non-voting, the preference shares issued to Independent Newspapers will have voting rights in certain specific and not insignificant circumstances.

The holders of the new preference shares will have voting rights at general meetings where the business includes "the consideration of a voluntary arrangement with the creditors of the company or a resolution for the winding-up of the company or the presentation of a petition for the making of an order appointing an examiner".

Given that Independent's preference shares will outnumber the ordinary shares by something in the region of 20 to one, Abbey Street will be in the driving seat in such a situation. Not a bad place to be in a company which has lost £1.75 million last year and whose collapse is one of the few scenarios in which it is possible to see the Sunday Tribune passing into new hands.

The new articles also state that the preference shares can be redeemed "on such dates as may be mutually agreed between the company and the holders" and, subject to the sanction of a special resolution of the company, the redemption price may be "satisfied either in whole or in part by the transfer of such specified assets of the company as may be agreed". The company's main asset is of course the Sunday Tribune title. Independent News and Media can argue that it is just regularising an awkward situation and the changes to the articles of association are nothing more than normal legal safeguards.

It could also argue that the decision to put its house in order regarding the Tribune has nothing to do with coming changes in takeover and merger law.

The Tanaiste, Ms Harney, has said that later this year she will bring forward legislation that will transfer responsibility for takeovers and mergers from the Department of Enterprise and Employment to the Competition Authority. The only exception will be the media.

She will also extend the criteria under which links between media companies will be scrutinised to include the exercise of control by means other than the purchase of shares. The close relationship between Independent and the Tribune has never been examined, despite the critical £15 million in loans, because Independent keeps its shareholding below the 22.99 per threshold. Department of Enterprise and Employment insiders said last week that the changes to Tribune Publications' articles of association would probably have required notification under the new legislation to see if they amounted to Independent taking control by other means.

They also pointed out that such a notification could have opened the whole Pandora's Box that is the relationship between the two companies, which in turn could raise the prospect of Independent being forced to divest.

By moving ahead of the new legislation's introduction, Independent has headed off any investigation of both the loans themselves and also the clever mechanism by which they have been turned into preference shares that have some very useful voting rights attached to them.

The good news for Dr O'Reilly and Independent News and Media is that the legislation will not have retrospective effect, but they probably already know that.

jmcmanus@irish-times.ie