Business Irish

Friday 9 December 2016

Ladbrokes is still favourite to take Irish business

Published 07/06/2015 | 02:30

Lord Henry Mountcharles at Slane Castle
Lord Henry Mountcharles at Slane Castle

The odds on betting chain Boylesports successfully buying Ladbrokes' Irish operations from examinership are probably pretty long. Based on the vast majority of examinership processes, the incumbent owners tend to come out the far side still in possession of the business.

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This is especially true where the owner is a large British business, rather than a smaller entity in some kind of financial trouble.

We have seen several cases during the recession where the Irish operations of a larger international plc have gone into examinership - usually under the heavy load of onerous property leases.

And they have come out the far side still owning a better structured and leaner business in Ireland.

There have been some exceptions when it comes to Irish company examinerships.

The Sunday Business Post is one example, where new owners emerged after the process. In the likes of Eircom, banks swapped debt for equity which altered the share register considerably.

But it is rare for large incumbent owners to lose a business to someone else in an examinership.

And with that in mind, Boylesports has seen a great opportunity.

The number two bookmaker in Ireland could make a significant leap forward by acquiring Ladbrokes, which is currently losing money.

During the week, the Irish bookmaker (owned by John Boyle and his family) went into the High Court, claiming that it had not been given enough information in the examinership and that the process was designed to prevent a takeover of the business. This was contested by examiner Ken Fennell of Deloitte and the judge is expected to give a ruling on it this week.

Regardless of the outcome of the judge's ruling, Boylesports is putting it up to Ladbrokes. If they are going to hold on to the restructured business they will have to really put up the best deal possible.

Rather than simply gleaning information about a competitor, the Boylesports offer does appear to be a very serious takeover approach - and it is likely to be taken as such across the water at Ladbrokes.

Boylesports is arguing that its offer trumps that of Ladbrokes, the parent group. It says its offer would see fewer jobs lost and it would not have to close 50 to 60 betting shops currently earmarked for closure. It is also talking about what it calls a "substantial eight-figure" investment in the business, after paying preferred creditors everything they are owed.

Ultimately, these will all be issues for the examiner mull over as he weighs up the benefits of counter offers.

At the very least Boylesports' offer is creating some very real competition for this business. If Ladbrokes are to benefit from the examinership process and come out the far side owning this business, they will have to make the best offer possible.

A successful bid from Boylesports would be quite the coup for John Boyle. It might also require competition commission approval.

If unsuccessful, Boylesports will have to decide whether it still wants to own the Ladbrokes shops and would involve making an offer to Ladbrokes rather than submitting a bid to an examiner.

That does look like as good an opportunity - and besides, Ladbrokes has given the clear signal that it doesn't want to sell. Its business in Ireland may well be struggling - but it isn't ready to pull the plug and walk away.

John Boyle is running a growing, profitable, debt-free business in Ireland.

Regardless of the outcome, his bid for Ladbrokes has shown that he remains hungry to expand the business a lot further.

Irish whiskey doubles up all round

The Conyngham family, owners of Slane Castle, are as dogged about business as anyone could be. From the Foo Fighters to Jack Daniels' parent company Brown-Forman, the masters of Slane Castle have landed some pretty big players in recent weeks.

Brown-Forman becomes the latest major international spirits group to buy into the Irish whiskey story. Even without this deal four of the top 10 spirits multinationals in the world had a stake in Irish whiskey - Pernod Ricard (Jameson, Powers, Paddys, etc), Beam Suntory (Cooley and Kilbeggan), Gruppo Campari (Irish Mist) and William Grant & Sons (Tullamore Dew).

It has been an amazing turnaround, with Irish whiskey sales growing by more than 200pc in the last decade - to around 6.7m cases. It is still a drop in the ocean compared to Scotch's dominance of the spirit world with around 86m cases.

The industry is preparing to spend another €370m between now and 2020, having ramped up investment by €400m between 2010 and 2013. An obvious question is whether there is a bit of an Irish whiskey bubble building?

Scotch sales dipped by 7pc last year - the first fall in a decade. Irish whiskey has been growing its share in a growing world market, but even Irish whiskey market share has had a few blips in the last 10 years.

Scotch's woes could be down to complacency - but it fared worst in markets like China and Singapore last year. These are markets where Irish whiskey sales remain very modest. Over 85pc of Irish exports go to the EU and the US.

Irish whiskey may be sold in 77 countries but Scotch is sold in 174 countries. The industry here is targeting a doubling of sales in the next 15 years. It is hard to see the Scots taking that one lying down.

The good news for Irish whiskey is that many new Irish distillers are not carrying the massive long-term investment in the product on their own. They are landing backers with deep pockets - even relatively new businesses like the Mountcharles operation.

Cairn Homes: a rock and a hard place

Cairn Homes is set to become the first Irish home builder to list on a stock market since the 1990s. The company is likely to list its shares on the London Stock Exchange later this week as part of a €400m fundraising.

It should provide investors with an opportunity to take a punt on the recovering Irish housing market without having to buy houses or build themselves. It is also another option if you don't want to invest in a long term dividend play like one of the Reits.

The flotation will be a real test of perceptions about the Irish property market in London. Irish property has had a toxic brand for several years during the crash and the ones punting on it from abroad have tended to be private equity investors willing to take a risk for higher returns.

That flood of international money has gone into commercial property from offices and hotels, but not that much has gone into house building. So it will be very interesting to see what kind of investors go for Cairn.

The sums for the investment case might on one level appear to stack up, but we don't have the full picture at this stage.

Rising property prices, a growing population and improvements in the underlying economy all point in Cairn's favour. The team at the company have a lot of experience.

However, this is a closed IPO - which means the initial investors will be invited clients or those expressing an interest in investing. The prospectus has not been published and won't be until after the shares start trading.

We do know that Cairn has several good investment sites in Dublin and Galway. Total acquisition costs for these sites is €62m and the company estimates a gross development value of €366m for them.

The current owners include experienced investors like Alan McIntosh and Michael Stanley, formerly of Stanley Holdings. They are putting €29m into the business, but it isn't at all clear how much of the company they will own after the float.

The share register for Cairn shows the biggest shareholder is a company with an address at Davy Stockbrokers, called Everleigh Investment Partners Ltd. Everleigh is in turn owned by a Guernsey-registered company called Prime Developments Ltd.

If the IPO goes well it will really knock on the head the moaning of the property industry that it can't build houses profitably at the moment. Surely Cairn Homes is confident that it can make a good profit out of building homes on these sites and a successful IPO will show that a lot of investors share the same view. Yet the industry has been complaining about a lack of margin and has hit the Government with an incentive wish list as long as your arm.

Are Cairn Homes shares a buy? Without the prospectus, I afraid I am between a Cairn and a hard place on that one!

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