CANTILLON: Inside the world of business
THE ANNUAL report of the Comptroller Auditor General highlights a depressing litany of wasted spending in the public sector.
The National Broadband Scheme will cost €1,180 per subscriber because of poor uptake. A new fingerprint system being implemented by the Department of Justice and An Garda Síochána ran €5 million over budget and is not being fully implemented because of industrial action at the Garda National Immigration Bureau. Despite €1 billion being spent on plugging leaks in local authority water supply systems since the mid-1990s, the amount of water being lost remains the same in most areas.
A common thread across the hundreds of pages of the report is how the public sector constantly comes out worse in its dealings with the private sector. Bearingpoint received payments of €3.3 million in relation to consultancy on the fingerprint system, although the initial agreed price was €151,250. While the scope of the project increased, the CAG points out the tender never specified “the likely scale or value of services to be drawn down”.
Public private partnerships were sold as a form of risk-sharing but it seems the public sector increasingly picks up the can if there is a problem. In a classic example, the National Roads Authority will make payments of €5-€5.5 million to the private operators of the M3 motorway and the N18 Limerick tunnel because of falling traffic numbers.
The CAG has said it is “difficult” to estimate the ongoing cost relating to planning for a range of projects which now look doubtful including Metro North, Dart underground and PPPs for roads, schools and hospitals.
The CAG’s report shows that significant progress could still be made if the new commercial realities and spending controls that private enterprise has learned to embrace in the last three years of a dormant domestic economy were applied in the public sector.
AIB still to bite bullet on new chief’ executive’s pay
IT WOULD appear the search for a new chief executive at AIB has been whittled down to two candidates if weekend news reports are to be believed. Both are strong candidates and working overseas – not unexpected, given the need to inject some fresh blood at the top of one of the State’s most scandal-plagued institutions. Brendan McDonagh, chief executive of HSBC in North America, and David Duffy, a former senior banker at Standard Bank and ING Barings, are on the final shortlist and both, curiously, went to Trinity College Dublin.
McDonagh comes from the same banking stable as AIB executive chairman David Hodgkinson, who was previously chief operating officer of HSBC. Hodgkinson worked closely on the bank’s US subprime mortgage book after the company was one of the first to raise a flag over dodgy US loans. Duffy has been working more recently through his own consultancy firm, Celtic Advisory International, providing advice to companies on raising capital.
Hodgkinson said last week that he was confident AIB would get its man by paying up to €690,000 a year recommended by the Government-appointed committee on bankers’ pay – above the €500,000 set by the last minister for finance Brian Lenihan.
The Department of Finance said yesterday that no formal proposal had been put by AIB, so the process appears to be very much ongoing. AIB’s board and the Central Bank have met the candidates but fitness and probity tests are yet to be carried out on the bankers.
Given their track records and their international experience, these tests should not raise any challenges. The pay issue could be another matter, as the department said that a compelling case would have to be made for the Government to consider setting aside the pay cap. That said, Hodgkinson has said that none of the candidates still in the race had raised the €500,000 pay cap as being an issue during the recruitment process.
Alkermes takeover a tonic for Elan and Athlone
IRELAND HAS become home to another significant player in the biopharmaceutical sector following completion of the $960 million deal by US group Alkermes to acquire EDT, Elan’s drug technology business, with the enlarged group now headquartered in Dublin.
By turnover, the new Alkermes would rank among Ireland’s top 100 companies and already a major deal has been announced for its Athlone base, which employs 450 people. Despite the price, Alkermes remains relatively cautiously leveraged. With $250 million in cash on the balance sheet post the transaction, annual debt-servicing costs of between $30 and $40 million are unlikely to trouble the cash generative group.
The market has welcomed the deal with the shares ahead 14 per cent since it was announced. JPMorgan analyst Cory Kasimov yesterday set a target price of $23 for shares that are trading around the $16.40 mark.
Kasimov noted that the deal removed the prospect of damaging competition between competing drugs, brings new revenue generators on board and creates a larger business more attractive to a wider investment base.
Elan meanwhile continues to profit on the deal. Apart from the $500 million upfront payment, the sale of EDT saw Elan take a 25 per cent take in Alkermes. The positive investor reaction has translated into another $70 million for Elan.
ONLINE
You can get the latest news each business day at irishtimes. com/business or by following us on Twitter at twitter.com/ IrishTimesBiz. We also have a Facebook page at facebook.com/ IrishTimesBiz where you can read the latest business headlines, blog posts and reader polls.
TODAY
The US Federal Reserve's open markets committee begins two-day meeting to discuss its scope to help support the US economy
