From Riverdeep to a mountain of debt

His international publishing company has lost its Irish-based investors $170 million, but this financier's restructuring plan has earned him credit, writes KATE HOLMQUIST

AS HE CONFIDENTLY told radio listeners this week how Davy investors had lost $170 million in shares in a company that is now worth several billion less than it was a few days ago, Barry O’Callaghan was as unabashed as only a wily Corkman can be.

Perhaps his positive attitude gave credit to a Clongowes Wood education and a life in the golden circle, though fellow Clongowes alumnus James Joyce may have seen the hubris in him taking over one of the most venerable publishing houses in the US in a deal based on $7 billion in borrowing, finance that fell apart because US school systems stopped buying books as a result of the recession.

The collapse of Houghton Mifflin Harcourt, which is owned by EMPG, has been a crisis brewing for more than a year, though O’Callaghan, its CEO, would have preferred to keep his heroic plans to save the company under cover. The businessman made a public statement this week, confessing that he had personally lost “hundreds of millions”, after his hand was forced by Fine Gael TD, George Lee, who on Wednesday highlighted the concerns of Irish shareholders who had lost their entire investment. It’s understood that O’Callaghan, notoriously media-shy despite his adept handling of the media this week, was not at all happy.

But it’s a tribute to O’Callaghan’s deft management of the crisis and to the loyalty of his business partners that his huge losses made headlines only this week. Admirers say that few could have put together the intricate rescue deal that O’Callaghan immediately unveiled in response to the crisis.

Davy investors, many of whom borrowed from Anglo Irish Bank, have been concerned since October 2008, when their shares – bought at $10 each – were reduced in value to $1 apiece. There were further concerns in December 2008, when the New York publishing world choked on the news that Houghton Mifflin Harcourt had stopped buying manuscripts, leading to the resignation of Becky Saletan, head of the company’s adult trade division. This was a hard-nosed business decision based on the fact that adult novels, poetry and non-fiction accounted for only 4 per cent of the business, but it harmed the company’s reputation as a venerable Boston publisher founded in the mid-19th century. By February 2009, Education Media and Publishing Group had lost its credit rating and looked likely to default on its $7 billion debt.

A year ago, the publishing world was dismayed at what it already saw as the downfall of "the birthplace of literary tradition in this country", as one former senior executive at Houghton told the Boston Globe. Another stated: "The editing and marketing operations were excellent. It wasn't about the books. It was about the owners." The Globedescribed O'Callaghan as a "freewheeling Irishman" who was skating on "thin ice". Paul B Carroll, a former Wall Street Journalreporter and co-author of Billion-Dollar Lessons, a book about why big businesses collapse, stated in a blog post at the time: "My feeling from the beginning was that O'Callaghan was building a house of cards and would only succeed as long as he succeeded in keeping people believing in the enterprise. With credit markets seizing up, it seems the day of reckoning is here. It looks like a game of musical chairs, and the question is, who is left standing when the music stops?"

The Irish investors whose shares have been erased have certainly had the chairs pulled out from under them, but the pragmatic O’Callaghan sees this as a necessary sacrifice to save jobs and the future of the Education Media and Publishing Group, which owns Houghton Mifflin Harcourt. Since January 10th, the company has released two dozen positive press releases about the good works it is doing in partnership with educators – including a plan to give away 178,000 books this year to mark its 178th anniversary. Actually, selling the books would have been preferable, since the huge loans that O’Callaghan took depended on income to pay the interest.

But Houghton Mifflin Harcourt’s positive spin is the least you’d expect from O’Callaghan, who is prominent on the company’s website and has, since becoming CEO of Riverdeep in 1999, expertly wooed investors and gained respect internationally for his abilities in creative financing. He talks a good game, and the deal he has cut shows that O’Callaghan has lost little respect as a result of EMPG’s troubles, which are being blamed on the US school system’s lack of funding rather than on financial folly.

The phenomenal restructuring deal that O’Callaghan revealed this week has the support of John Paulson, president of Paulson Co, Houghton Mifflin Harcourt’s largest lender, who said this week: “We are very supportive of the company’s efforts to optimise its capital structure to support its market leadership position in educational publishing. We have great admiration for Barry O’Callaghan and his leadership team. With the dramatic reduction in debt and injection of new capital, I believe Houghton Mifflin Harcourt is well positioned to provide the educational products and solutions that meet the needs of educators and parents around the globe.”

This week, O’Callaghan described his holding in EMPG to have been “well north of $1 billion” before the crisis. Still only 40 years old, he is the type to just pick himself up and create another fortune all over again – a lesson surely learned in the mud and muck of the rugby pitch at Clongowes. Playing the financial power game rather than being rich has been his motivation. He has told friends that he intends ultimately to give his money away.

The son of a Cork-based doctor, O’Callaghan has never flaunted his wealth, despite being barely more than 30 when he became a millionaire through his involvement with Riverdeep. After Clongowes, he got a law degree from TCD, where his two brothers studied medicine, but turned his back on law to work in investment banking in London and became a specialist in telecoms and technology at the very time the software industry was booming. But the brash master-of-the-universe lifestyle didn’t appeal to him and he was drawn home to Ireland by Pat McDonagh, who hired him to help float Riverdeep on the US Nasdaq exchange. Within a year, O’Callaghan had made €126 million from his 7 per cent stake and, through a series of brilliant business moves, he increased his stake until he took over the company, buying out McDonagh. Shareholders who sold to O’Callaghan when the company was undervalued were kicking themselves at having sold too soon.

FIERCELY AMBITIOUS in his international financial dealings, O’Callaghan sees himself as first and foremost a family man. “He is a 110 per cent family guy. It’s all about his wife and kids. He’s an extremely hard worker and extremely driven in business, but he compartmentalises that area and comes home every weekend religiously,” says a friend.

He and his wife Geraldine, whom he met at TCD, base their lives around their four young children – three daughters and a son. While his business requires him to be in the US, he can still be seen at weekends barrelling around Blackrock, Co Dublin, picking the children up and dropping them off to various activities, then doing the food shopping. He enjoys cooking and his social life is no more exciting than a meal and a few glasses of wine with friends in his own home or theirs.

His friends are loyal and long-lasting and he is so wary of contact with the media that he never allows his domestic sphere to overlap with his business dealings. He keeps his close friends very close. While he has all the business acumen and charm to have drawn in major investors not just in Ireland but internationally, he does not socialise with the big players and prefers his own patch in south Co Dublin. His tastefully luxurious but understated home is his haven – never more so than now with the eyes of the financial world watching his every move.

CV BARRY O'CALLAGHAN

Who is he?

Forty-year-old CEO of Education Media and Publishing Group (EMPG), based in Dublin, which owns one of the US’s most prominent publishing houses, Houghton Mifflin Harcourt.

Why is he in the news?

People who bought shares in EMPG through Davy Stockbrokers have seen their $170 million investment wiped out.

How did he become a billionaire?

In 1999, he was made CEO of Riverdeep, an educational software company. He guided the floatation of the company on Nasdaq and personally acquired a majority share-holding, then sold the company.

Greatest talent?

Attracting investment even in the worst of times.

Lifestyle?

Home, family and Munster rugby.