By keeping 94 per cent control of Digicel with just 60 per cent of the equity, it is clear that Denis O’Brien wants institutions’ cash but not their input.
If he is to get the flotation away within the targeted price range, investors will need to be convinced that he knows best. O’Brien will be chairman, and king. The flotation documents detail the extraordinary level of operational and strategic control he proposes to retain through his B shares, which have have 10 times the voting power of ordinary investors’ A shares.
“Mr O’Brien can control any action requiring the general approval of the company’s shareholders,” according to the documents. This includes “the election of directors, the adoption of amendments to the Memorandum of Association and our bye-laws, and the approval of any amalgamation or merger”.
The document warns investors that any buyout of Digicel will be “...impossible without the support of Mr O’Brien, even if such events are in the best interests of other shareholders”.
His control will only be relinquished once his stake falls below 10 per cent. If O’Brien sells a B share it will automatically become an A share, unless it is to a family member or to one of his companies or charities.
Shareholders must also accept numerous outside transactions entered into by Digicel that ultimately benefit its founder, which are clearly disclosed in the documents.
In addition to various expense arrangements, the most lucrative is the deal with O’Brien’s Island Capital. On top of a $500,000 annual advisory fee, it gets 0.5 per cent fee of the value of all Digicel “tender offers, acquisitions, sales, mergers, financings, exchange offers, [or] recapitalisations”.
Through Island, O’Brien could get up to a $10 million fee for the flotation. The Island arrangement has been worth $28 million to him over the last three years and if Digicel, as looks likely, buys back its $2 billion tranche of 2020 bonds next year, O’Brien will effectively get another $10 million.
Fitch estimates that Digicel’s capital expenditure will be $1 billion over the next two years, hugely benefitting O’Brien’s Siteserv engineering company. Take his $1.1 billion in dividends over the last three years, his share of the $10 million quarterly payout and the near $3 billion value of his stake, and O’Brien’s wealth may have increased by more than $5 billion as a result of his original investment.