Battle of the Billionaires

April 17th, 2008

There is a billionaires’ battle going on in Ireland likely to have repercussions for our local media.

Tony O’Reilly is facing a serious challenge for control of Independent News and Media from another Irish billionaire, telecoms mogul Denis O’Brien. O’Reilly’s Independent group has interests in Ireland, England, Australia and South Africa, where they have dominated the regional English-language newspaper market for decades.

O’Brien, who has had a long-running personal rivalry with O’Reilly, has been buying up shares in the middle-sized global group since 2006. He has a sizeable 22,2% now and has in the past few weeks made his intentions clear.

The Observor newspaper reported this weekend that O’Brien planned to take control of the company and sell off the loss-making flagship, the Independent of London. According to “a source close to O’Brien”, he “isn’t intending to sit on the sidelines with his tanks on their lawn for ever and a day … the company won’t be in the same hands further down the lineâ€?.

O’Reilly and his fellow directors control just over 28%, enough, as James Robinson of the Observor put it, “to keep it out of the clutches of a buyer, but too small to run it like a family concern�, which is what he has been doing.

The South African interests are known as Sir Tony’s newspapers and they treat his personal opinions as national news. He has put his son Gavin O’Reilly in as chief operating officer and packed the board with his cronies.

But if O’Brien’s holding reaches 25%, which seems on track, it will be enough to disrupt the business and block any major transactions. If either of them goes up to 30%, they will have to make an offer to minorities.

O’Brien has reportedly been paying up to twice the listed price for shares and O’Reilly has in recent weeks spent some £14m to shore up his holding. Neither of the two tycoons lack the clout or the ego to pay over the odds for control of a company currently valued at £1,2bn.

The Independent board spoke out recently, calling O’Brien a “dissident shareholder�. O’Brien shot back, saying they were only trying to distract attention from the company’s poor stock performance.

One commentator points out that it would be hard to beat O’Reilly’s performance. Just last week, the company’s latest results beat expectations, with operating profits up 6% and margins up to an astounding 21,9%. Ad revenues were up 5,4% and online revenues 108%.

That is quite a performance in the current newspaper market (though the group is also in outdoor advertising and radio) and will not be an easy one to improve on.

Most controversial would be O’Brien’s plan to ditch the Independent of London, as it could well lead to the paper’s demise. It is the jewel in the group’s crown and O’Reilly has never flinched from supporting it, despite its losses.

He has said it is his “calling card�, the one that gets him access to the presidents he likes to hang around in countries where he is thinking of investing. His friendship with Nelson Mandela helped him pick up his newspapers here are at a bargain-basement price. They have become a major earner for him since then as energetic cost-cutting has allowed him to ship handsome profits back to Ireland (to the detriment, many say, of the quality of these papers). Certainly, O’Reilly has not been reinvesting much into the sector here.

And his 100% control of the South African group means that it is the least empowered media group in a sector drawing flak for its lack of black owners. While there is at least some movement in the shareholding of Avusa and Naspers, and Caxton is in the process of breaking away from Avusa, Independent has remained relatively immune to these pressures.

Various black business interests have often sniffed around Independent’s South African interests, but O’Reilly has never offered local investors more than an expensive minority position.

But one of the effects of the Irish battle has been to make newspaper people take a fresh look at O’Reilly, realising that for all his faults he probably cares a lot more for the industry than O’Brien.

Maybe the pressures will open up opportunities for change – and new investment – in our local Independent newspapers.

*This column first appeared in Busines Day, 2 April 2008

Entry Filed under: Anton Harber, Journalism, Print