A key point in the Siteserv sale had been reached in February 2012 when company co-founder Niall McFadden sent an email with confidential information to Dermot Hayes, an adviser to businessman Denis O’Brien who was in the race to buy the troubled building services firm in a deal that remains contentious even 10 years later.
McFadden was in Switzerland at the time for a bootcamp fitness holiday with O’Brien and Robert Dix, the senior independent director on Siteserv’s board who was himself criticised by Mr Justice Brian Cregan for his role in the sale.
A decade on, the judge’s mammoth report on the saga casts new light on the connections behind the scenes that helped propel Siteserv towards the contested deal with O’Brien that involved a €118 million loan write-down from the State-owned Irish Bank Resolution Corporation (IBRC).
These include “undisclosed” engagements leading to an “extraordinary situation” in which McFadden and Siteserv co-founder Brian Harvey, the chief executive, negotiated a 15 per cent shareholding in the O’Brien company that bought the business without anyone in Siteserv being aware of it or anyone in IBRC, the main creditor.
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That was despite the fact that the sale process was monitored by the Siteserv board, the sale subcommittee, corporate finance advisers from KPMG and Davy, solicitors Arthur Cox and a representative for IBRC, among others.
McFadden was a pivotal figure, with a dual role helping O’Brien with his bid while representing both himself and Harvey in talks with O’Brien’s camp to secure a significant shareholding after the Siteserv deal. McFadden started such discussions early in the sale, making a proposal on “incentivisation arrangements” at a meeting with Hayes on January 13th even before O’Brien had made his second-round bid.
The report shows McFadden emailed Hayes on February 2nd saying he understood Siteserv’s board would meet four days later to consider second-round bids that were submitted in late January. McFadden also said O’Brien’s bid and two others would probably go forward to the next round.
In the Swiss bootcamp days earlier, McFadden and O’Brien agreed in principle that Harvey and McFadden and Siteserv management would receive up to 15 per cent of the shares in the O’Brien company set up to buy Siteserv if his bid prevailed. McFadden phoned Harvey from Switzerland to inform him of these discussions. So Harvey was aware from “on or about” February 1st – the day after second-round bids were received – he and Mr McFadden would obtain up to 15 per cent of O’Brien’s new company if he succeeded in buying Siteserv.
According to the Cregan report, Harvey was the source for the information McFadden relayed to Hayes in his email of February 2nd. This was the first of six “crucial” occasions on which Harvey improperly favoured O’Brien’s bid, putting his own financial interests ahead of the best interests of Siteserv and IBRC.
“He provided that information to Mr McFadden knowing that it was confidential to the Siteserv sale process, knowing that Mr McFadden was advising/assisting Mr O’Brien on his Siteserv bid, knowing that Mr McFadden would be likely to pass it on to Mr Hayes (which he did), intending it to be of assistance to Mr O’Brien’s bid, and in circumstances where Mr McFadden was trying to negotiate the best shareholding possible in Mr O’Brien’s new company for Mr Harvey and for himself.”
The judge said there was no evidence that O’Brien, Hayes or anyone else in O’Brien’s company Island Capital ever sought or solicited such information or did anything improper to obtain it.
When Siteserv’s sale committee met on the 6th, the company decided to proceed only with two bidders to the next phase – O’Brien and a group called Anchorage. “Although he attended that meeting, Mr Harvey did not disclose his agreement in principle that he and Mr McFadden would receive up to 15 per cent of Mr O’Brien’s new company,” the judge said.
Three days later, the sale subcommittee decided to grant exclusivity in the talks to O’Brien, a decision affirmed the next day by Siteserv’s board. This was one of its most important decisions in the sale process, conferring a significant advantage on O’Brien. “Mr Harvey attended both meetings, and participated as a Siteserv director in the second. Therefore, Mr Harvey voted in favour of the grant of exclusivity to Mr O’Brien in his capacity as a Siteserv director without disclosing his agreement in principle to acquire a shareholding in Mr O’Brien’s new company and thus that he had a significant financial interest in Mr O’Brien’s bid succeeding.”
The judge said Harvey also failed to disclose that McFadden was helping O’Brien with his bid and that McFadden would receive a stake of between 4 per cent and 6 per cent in O’Brien’s new company. Harvey’s own “significant” financial interest in O’Brien’s bid should have been disclosed to Siteserv’s board. In addition, Harvey had a clear conflict of interest between his own personal financial interests and the interests of Siteserv.
“Mr Harvey’s concealment of his significant financial interest in Mr O’Brien’s bid, while voting as a director of Siteserv in favour of Mr O’Brien’s bid, was manifestly improper and wrong.”
The Siteserv deal was announced publicly on March 16th. Between the 25th and 29th, McFadden exchanged “a number of” emails and draft shares letters with Hayes seeking to agree final details of the shareholdings that he and Harvey would acquire in O’Brien’s new company. “Mr McFadden’s proposals provided for Mr Harvey to acquire, at nil cost and vesting over three years, 6 per cent of Mr O’Brien’s new company as part of his management incentivisation plan.”
Such emails and draft share letters also provided that McFadden would receive a transaction fee of €480,000 which he would exchange for 4 per cent of O’Brien’s new company.
“In his proposals, Mr McFadden sought to exclude the rest of the Siteserv management team from participation in the 15 per cent of new company shares that were to be available as part of the incentivisation plan for Siteserv management.”