How the €145.6m Mediahuis deal for INM was done

The Belgian banking group KBC, which has an Irish presence, held its main board meeting in Dublin a few years back. Its chairman, Flemish industrialist Thomas Leysen, ran the gathering in a private room at the five-star Merrion hotel.

On Tuesday he returned, this time as chairman of Mediahuis. The Belgian newspaper group had just agreed a bargain-basement deal to buy Independent News & Media (INM), the State's largest news publisher, for €145.6 million.

At the end of a media briefing called after the announcement of the takeover, the softly-spoken businessman sipped his water and smiled as he admired his surroundings in the Merrion’s plush Mornington House wing.

“I think the KBC board meeting I chaired was actually held in this very same room,” said Leysen, who sits alongside Michael O’Leary on the steering committee of the secretive Bilderberg business leaders’ conference.

Jenny Greene returns and Doireann Garrihy joins as 2fm pivots to talk

---

Radio ratings: Marian Finucane, Matt Cooper the main winners

---

Avengers: Endgame to make this the busiest week for Irish cinemas in seven years

---

Firm behind Brendan O’Connor’s RTÉ show increases profit by 66%

---

“I know Ireland quite a bit, you know. I have even spent some family holidays here.”

If the INM deal gets over the line as expected in the autumn, Leysen is likely to make many more trips to Dublin in the times ahead. Steadying the troubled newspaper group, however, will be no holiday for the Belgian.

Long-term aim

The sewn-up nature of the Mediahuis bid for INM quickly became apparent on Tuesday morning, with a hat-trick of stock exchange announcements announcing firstly the price; then the backing of INM's biggest shareholders Denis O'Brien and Dermot Desmond, followed by the acquisition of a 26 per cent blocking stake by the Belgians that will likely deter any other potential bidders.

The genesis of the transaction, however, emerged more than two years ago when Mediahuis began casting about for new markets to conquer. “We’ve been working towards this for quite a while,” confirmed Leysen.

Mediahuis was formed in 2013 following the merger of two Belgian publishers. It grew rapidly through acquisition before branching out into the Netherlands in 2015, and again in 2017. It soon began assessing other markets for expansion. Ireland was one.

“We were looking in general terms at what could be our next steps, in a hypothetical way,” said Leysen.

Gaining irrevocable backing was the key for Mediahuis

As it mulled its options, the ground had begun shifting beneath the feet of INM’s board and management. The Irish group became embroiled in a series of damaging governance scandals, culminating in the appointment last year of High Court inspectors. Potential suitors were alerted to its weakened state.

Sometime last year Leysen and Mediahuis spied an opportunity to snap up INM on the cheap and fold it into its business to create a €1 billion-a-year group. Mediahuis hired an unnamed Irish adviser with media industry experience, who began quietly gathering information on INM, feeding it back to Belgium.

Speculation that it was a takeover target was already swirling around the Irish group, but Mediahuis held back on making contact until it had amassed enough intelligence, including INM’s potential exposure in an alleged data breach scandal.

“We did our homework on that. We did our due diligence, and factored it in,” Leysen confirmed during Tuesday’s briefing at the Merrion.

In February of this year, his homework done, the Belgian made his move. He picked up the phone to Murdoch MacLennan, his counterpart as chairman of INM. The Irish company was interested, so Mediahuis appointed JP Morgan as adviser and INM appointed the investment bank Lazard.

The engagement continued in secret on a parallel basis: Leysen in discussions with MacLennan, while JP Morgan's Dwayne Lysaght hammered out the details with Nick Shott, head of UK investment banking at Lazard. MacLennan kept the INM board apprised of the discussions.

Everything remained below the radar until the start of April. Michael Doorly, INM's chief executive, was doing the rounds in the investment community after the release a few days earlier of its annual results. In a couple of meetings he raised the prospect of an INM sale. Word of this reached this newspaper.

On the morning of April 4th, The Irish Times reported that INM’s chief executive was telling people the company could be sold. Its share price, which had been languishing just above 7 cent, immediately jumped.

The Irish Takeover Panel, which by now was aware of the Mediahuis interest, contacted INM that morning and told it that it would have to make a stock exchange announcement.

At 10.43am, INM released a statement confirming it had received an approach, but it did not name Mediahuis, whose identity was still not known to anyone outside of the talks. INM’s shares spiked 30 per cent.

From then on the pace of the process picked up rapidly. It is believed a couple of other potential bidders expressed an interest in INM, including a private equity group that made contact by telephone.

INM opened a virtual data room, a secure website accessed by a password, where potential bidders could examine internal accounts and other documents provided by INM. It is believed three suitors accessed it, including Mediahuis, which by now was furiously conducting due diligence as it dived for the line.

In early-to-mid April, Mediahuis made an offer for INM, conditional upon the irrevocable support of Denis O’Brien and Dermot Desmond, who between them controlled 45 per cent – O’Brien with almost 30 per cent, and Desmond with the rest.

INM has sold off all its foreign assets and retreated to its home market, putting all its eggs in the Irish basket

Gaining their irrevocable backing was the key for Mediahuis. A third strand of negotiations opened up as the Belgians began talks with the two Irish billionaires, who both became closely involved in the process.

It is believed that O'Brien's main adviser was Dermot Hayes, the investment director of his in-house corporate finance team Island Capital.

Desmond is understood to have leaned on his firm International Investment & Underwriting.

Cian McCourt, a partner with Arthur Cox solicitors, was also heavily involved on the Mediahuis side.

The negotiations ramped up over the following couple of weeks as Mediahuis sought the undertakings from the main shareholders. Talks also opened up on O’Brien and Desmond selling the Belgians a blocking stake from their holdings.

As the talks neared a conclusion, Leysen and his chief executive, Gert Ysebaert, flew to Dublin. Senior management at Mediahuis also met their counterparts at INM in a gathering held away from INM's offices.

As agreement was reached on a bid price and on the irrevocable undertakings, a separate a deal for the two large shareholders to sell 26 per cent of INM to Mediahuis was basically wrapped up late on Monday night.

On Tuesday morning, before markets opened and ahead of INM’s agm, it pulled the trigger and announced the deal.

It led to a stormy INM shareholders’ meeting at the Westbury hotel in Dublin, where its board was excoriated from the floor for agreeing to sell the company for 10.5 cent per share.

Factor in the €81.7 million cash on INM’s balance sheet, and the Belgians were getting INM for just €64 million.

In the midst of this, at 11.30am, the announcement was made that Mediahuis now also had its blocking stake. It was effectively game over for any other potential bidders even remotely interested in INM.

At 1pm, flanked by Ysebaert, Leysen strolled into the briefing at the Merrion hotel.

The last time he was in that room, as he noted, it had doubled as the boardroom of KBC bank. On Tuesday it was effectively a winner’s enclosure for Mediahuis, which sealed a deal to buy the biggest Irish newspaper group, publisher of more than 20 titles, for little more than the price of a long-range private jet.

Bad luck

“It is an astonishingly low price to sell the company,” said Gavin O’Reilly this week. The former INM chief executive was ousted by O’Brien following a long and bitter boardroom battle that ended during the last recession.

“When you factor in the cash on its balance sheet, it is being sold for a little over two times earnings. That multiple is hard to reconcile. The distribution business alone has got to be worth €50 million to €60 million. They’re effectively valuing the publishing business at next to nothing.”

When O’Brien took over as the dominant shareholder of INM from the O’Reillys back in April 2012, who would have thought that the company was in for seven years of bad luck?

Compared to the period before he became the dominant shareholder, its revenues and earnings have nose-dived. INM has sold off all its foreign assets and retreated to its home market, putting all its eggs in the Irish basket. Its boardroom has also, at times, looked more like a battleground.

Meanwhile, it has become the subject of a series of high-profile State governance investigations, covering everything from regulator concerns over possible insider trading to an apparent data breach involving operatives whom the State’s corporate watchdog alleges were paid for by an O’Brien-linked company in the Isle of Man.

Every new market has its own characteristics. We will have to learn

INM is now under investigation by High Court inspectors, and it is facing a slew of lawsuits over the suspected data breach, all of which Leysen this week confirmed had helped to drive down the price of the takeover offer.

O’Brien spent well over €500 million for his stake, but has now agreed to sell it for less than a tenth of that. It was never supposed to be this way.

O’Reilly says he is saddened by the current state of INM, “having listened to the significant shareholders and the board lecture the previous management team” – i.e. having listened to them lecturing him before they ousted him.

“Sadly the brands are no longer what they used to be... We have seen the media operator that Denis O’Brien is not,” said O’Reilly.

He is hopeful that Mediahuis can restore some of the company’s fortunes. “They won’t get it back to its glory days. But hopefully they are buying it for the right reasons.”

Leysen and Ysebaert were careful in the Merrion on Tuesday not to make any forward looking statements about their plans for INM. They haven’t gotten the keys to the front door yet anyway.

They did highlight the track record of Mediahuis in developing digital offerings and in boosting the numbers of paid subscribers at the group’s titles in Belgium and the Netherlands. The biggest challenge facing INM is how to get readers to pay for its online content.

“In general we are accelerating our efforts to have more news behind a paywall,” said Ysebaert. “It is paying off quite well.”

He also suggested that Mediahuis may in future use INM’s brands to target the Irish diaspora. “There are a lot of people living abroad with Irish roots. Maybe there is also potential in that.”

Leysen, meanwhile, was careful to strike a note of humility as Mediahuis enters the fray in Ireland for the first time. “Every new market has its own characteristics. We will have to learn.”

He also warned that his company was not interested in building an “empire”.

“Empires that get built too quickly can be quite vulnerable.”

If recent events at INM have taught us anything, it may be that.