INM capital-raising proves an opportunity for Desmond

It has, at times, been a torturous exercise, but Independent News & Media is on its way to cleaning up its balance sheet, whittling down its net debt to €118 million – the figure stood at almost €435 million at the end of June.

But the company is set to end 2013 in a very different state: it will be smaller, following the severing of its South African arm, and it may well (depending on the actions or inactions of the O’Reilly family ) have a new second-largest shareholder in the shape of financier Dermot Desmond. As a result of his participation in the €40 million capital-raising exercise – the final key stage of the debt restructuring agreed with its lenders earlier this year – Desmond will increase his stake in INM from 6.4 per cent to 15 per cent.

Why Desmond has chosen to beef up his stake is at present a mystery. In any case, his history with the company goes beyond a mere minority stake. Like INM’s biggest shareholder Denis O’Brien, Desmond voted against James Osborne’s re-election as chairman last year. The removal followed a dispute between Osborne and O’Brien-nominated INM director Paul Connolly over the latter’s decision to pursue a legal action against the €1.87 million exit package paid to former chief executive Gavin O’Reilly.

Desmond had previously clashed on a number of occasions with O'Reilly, exchanging a series of testy letters with him in 2011 in relation to what Desmond claimed was INM's liability for libels that appeared in the Sunday Tribune a decade earlier. "I look forward to receiving your cheque," Desmond signed off one such letter. In March 2012, shortly before O'Reilly resigned, the businessman also described an article in the Irish Independent about Celtic football club, in which he is the major shareholder, as "disgusting", complaining to O'Reilly that "this type of gutter press" was not what he would have expected from a company "in which I have invested a substantial sum of money". Mr Desmond has investments in everything from biometrics to exploration and healthcare businesses through his Dublin-based company International Investment and Underwriting (IIU). He was appointed chairman of the board of Aer Rianta in 1990 under the Charles Haughey government, but resigned in October 1991 amid controversy over Telecom Éireann's purchase of the Johnston Mooney & O'Brien site. In 2004, Mr Desmond hailed Haughey, by then disgraced, as "a man of vision" for championing the IFSC. Yesterday, soothing words such as "financial stability" and "firm platform" in its announcement to the Irish Stock Exchange helped INM's shares rise 3 per cent to 13 cent on the Dublin market, up 33 per cent. An above-average 6.5 million shares changed hands, as investors appeared to take a long-term view. At the end of 2012, its shares were priced at just 2 cent. The share price has been trending upwards in recent months. The capital-raising process is likely to take place over the next fortnight .

It is expected to result in a dilution for shareholders of between 40 and 70 per cent, which is why Mr O’Brien must also participate to stand still at 29.9 per cent. If the exercise was not to proceed, the group’s banks would automatically get 70 per cent of the equity under the restructuring deal – this is a fate all shareholders will want to avoid.