No need to push the panic button
A bemused but upbeat O'Callaghan believes his firm has been used as a pawn in a political game, writes Shane Ross
BARRY O'Callaghan went on a media offensive last week after George Lee landed him in the manure business.
He was upbeat, but genuinely puzzled, about all the fuss surrounding the solvency of his company. On Friday morning in the Shelbourne Hotel, he had harsh words for Lee, Fine Gael's rising star.
"My understanding is that all political parties want to keep jobs in Ireland. In his pursuit of political gain and of scoring a few points off Minister for Enterprise Mary Coughlan, George has jeopardised job creation.
"He has made our principal stakeholders wonder why we are not treated better in Ireland. My firm has become a pawn in a political game between Lee and Coughlan."
It was unlucky for the publishing maestro that the story of his funding problems broke in the same week that builder Bernard McNamara hit the deck. He declares that there is no link whatsoever, not even in his choice of bankers. He disputes Lee's contention that he is over-exposed to Anglo and by extension the taxpayer. "I am solvent," he insisted. "Nor did every shareholder in EMPG borrow from Anglo."
He resents the attempt to portray him as being a drain on the taxpayer through Enterprise Ireland, the state agency that approved a €30m grant for the troubled firm.
"I have only drawn down €4m of that money," he thundered. "We have been restructuring for 16 months. It is not over yet. This episode is only part of it."
He denied the company's solvency was in question. "Look, we have one of the giants of Wall Street, John Paulson, wading in behind us." O'Callaghan told how he met hedge-fund legend Paulson in his office after the investment magician had begun to nibble at his company debt. He was grilled by two of Paulson's underlings for 45 minutes. Paulson listened, then turned to O'Callaghan. "I like you," he volunteered. "You have an overleveraged balance sheet -- but a good business."
Paulson piled in. He regarded the debt as cheap.
By the time the present reconstruction is over, Paulson will probably own 40 per cent of the company after he converts his debt into equity.
O'Callaghan will lose the value of his entire equity stake in his company, once worth well north of a billion dollars on paper, but Paulson has given him a vote of confidence by keeping him on as CEO. He refused to reveal his latest package, but revealed it would be adequate and would include heavily incentivising share options.
On the wipeout of his personal fortune, he does not seem to mind very much.
"It is wrong to say that the investors' equity is wiped out. Investors should not tear up their share certs. They still hold shares which are currently of no realisable value. But they have hope value. I was the biggest shareholder and have expectations of recouping value for shareholders -- including myself."
He admits his mistakes. He paid too much for assets during an bubble -- like every other private equity punter.
"But we are the global leaders in the market. The industry is in trouble. Many of the biggest US states are our clients and have cut down on education spending -- but the product is superb."
He is amazed at the lack of response to his message in Ireland. He has met six ministers for education, but done no business.
"I am surprised by the Irish reaction to this product of the Celtic Tiger which became a global business, especially as California, Texas and others are enthusiastic buyers. We continue to create jobs in Ireland. We have indigenous companies operating here. Last week's reaction in Ireland is unfair. If this story had run in the US the way it has run here, the jobs would be in jeopardy. I pay my taxes here."
He is unlikely to pay so much in the way of taxes in 2010 -- but, according to himself, last week's outbreak of panic in the media about the state of his company was merely a storm in a teacup. The restructuring will be completed within a few weeks and it will be business as normal -- with or without George Lee.