Key Siteserv figures had close undeclared engagements with Denis O'Brien and his representative before the businessman 's disputed deal to buy the company, a draft report on the affair shows.
The draft, by Mr Justice Brian Cregan of the High Court, follows seven years of inquiry into a deal done at speed just before St Patrick's Day in 2012 when Siteserv was in danger of collapse because of the financial crisis.
A decade later, the lengthy document sets out events behind the scenes as Siteserv closed in on an agreement with Mr O'Brien to save the business and more than 2,000 jobs. Mr O'Brien's offer was favoured despite the prospect of a higher price from rival bidder Anchorage – and the judge's draft is heavily critical of the decision to enter exclusive talks with him.
The decision to negotiate only with Mr O’Brien was pivotal to the sale process and conferred a significant advantage to him, the draft says. The move was made without contacting Anchorage or allowing it an opportunity to follow Mr O’Brien in advancing to the top of his bid range. The bank’s approval of that decision was “based on misleading and incomplete information”, the judge says.
Among the events that took place before that decision was a January "bootcamp" in San Moritz, Switzerland, that was organised by Niall McFadden, a Siteserv co-founder who was advising chief executive Brian Harvey. Also there for the skiing and fitness trip were Mr O'Brien and Robert Dix, Siteserv's senior independent director and chairman of the sale subcommittee.
Mr O’Brien ended up leaving early because of an injury. The draft says Mr O’Brien was “not at fault” for going on the trip, adding that he and Mr Dix did not discuss any Siteserv bid and saying there was “no evidence” that Mr O’Brien sought to discuss it while they were away together.
But the draft shows how Mr McFadden and Mr O’Brien talked about Siteserv over breakfast one morning, discussing “the size of the shareholding” Mr Harvey and Mr McFadden could acquire in Mr O’Brien’s new company if his bid won out. “At this meeting, they agreed that Mr Harvey and Mr McFadden could obtain up to 15 per cent between them in the new company. Mr McFadden telephoned Mr Harvey to tell him this shortly afterwards.”
The judge is critical of Mr Dix in the draft for not disclosing the trip to the Siteserv board, saying that prevented the board from considering whether the integrity of the sale process was compromised. The draft goes on to say the failure to disclose the trip to Irish Bank Resolution Company (IBRC), the former Anglo Irish Bank, and its outside observer of the deal, Walter Hobbs, prevented the bank from ensuring Siteserv was running a fair and impartial process.
‘Error of judgment’
“Mr Dix accepted that he should have disclosed his trip to bootcamp and that it was an error of judgment not to have done so,” the draft report says.
“The commission has found that Mr Dix’s relationship with Mr O’Brien and Mr McFadden and his trip to bootcamp would, if they had been known at the time, have given rise to a perception on the part of a reasonable, objective person that Mr Dix was not impartial in his role as chairman of the sale subcommittee.”
Mr Dix declined to comment. Many witnesses are known to argue there was no impropriety and that the deal was a good one.
The judge’s draft also describes how Mr McFadden sought to negotiate that Mr O’Brien or his new company would buy Mr Harvey’s loan from IBRC or assist him in talks with the bank about the loan. The judge makes it clear that Mr O’Brien did not buy the loan or “offer to do so or lead Mr Harvey to believe he would do so”.
But the draft sets out other arrangements that led to Mr Harvey and Mr McFadden holding a combined 15 per cent in Mr O’Brien’s new company, saying such matters affected the commercial soundness of the transaction.
The draft describes Mr McFadden negotiating for Mr Harvey that Mr Harvey would receive 600 “free shares” or 6 per cent in Mr O’Brien’s new company if Mr O’Brien won. He also negotiated a scheme known as a “bonus barter” whereby Mr Harvey could exchange a €350,000 Siteserv bonus for 3 per cent in Mr O’Brien’s new company and “avoid tax”, which the draft report describes as a “significant incentive” to back Mr O’Brien.
“The commission has concluded that all these were highly significant incentives for Mr Harvey to improperly favour Mr O’Brien’s bid instead of the higher Anchorage bid, at the expense of the bank and, ultimately, the Irish taxpayer,” the draft says.
For his part, the draft says , Mr McFadden agreed with Mr O’Brien and his representative that Mr McFadden would be paid a “finder’s fee” of 1 per cent of the value of the transaction – €480,000 – and receive payment in shares constituting a 4 per cent stakes in Mr O’Brien’s new company.
The draft findings are certain to be disputed in strong terms when key witnesses respond. But the judge is clear in his assessment – at least this latest draft – that the Siteserv deal was not commercially sound.