Monday 4 May 2015

Payday for BGE advisers despite €400m shortfall

Windfall for lawyers as sale price disappoints

Published 20/07/2014 | 02:30

Bord Gais spent millions preparing the sale
Bord Gais spent millions preparing the sale

Bord Gais spent €27m on lawyers, financial advisers and staff assigned to the sale of its energy business, despite the fact that the unit sold for €400m less than hoped.

Dublin "Magic Circle" solicitor firm McCann Fitzgerald, British solicitors Allen and Ovary, financial advisors Royal Bank of Canada and due dilligence team PWC were the biggest beneficiaries.

Figures show the semi-state company paid €7.9m for legal advice, €3.8m for financial advice and €6.8m on due diligence on the sale of Bord Gais Energy (BGE).

It opted to pay for due diligence itself rather than let the buyer shoulder due diligence.

Another €9m was spent internally on staff allocated within the organisation to deal with the sale.

Bord Gais chief financial officer Michael McNicholas said the fees for professional services amounted to 1.6pc of the total value of BGE, which it said fell below market benchmarks for comparable transactions.

The figures have been released following the completion of the sale of BGE last month to a consortium of Brookfield Renewable Power, British Gas owner Centrica and Icon Infrastructure.

The long duration of the bidding process is understood to have racked up costs. Up to 20 bidders initially expressed interest in the country's natural gas network, including Malaysian energy group Tenga, though the number of bidders had dwindled to three by the time the winning consortium was selected.

The sale process collapsed completely at one point in November, with the Department of Energy blaming excessively low bids - understood to be as much as €100m less than anticipated - despite the fact that bidders pointed out there was no reserve price on the asset. Bord Gais said this temporary halt to negotiations did not exacerbate the cost of the sale process.

Described by the company as a "significant and complex transaction", BGE ultimately sold for €1.1bn.

But the semi-state had at one point valued its energy business at as much as €1.5bn.

This was slashed after management was forced to write down the value of its Whitegate gas refinery by some €224m because of a host of factors impacting demand for natural gas, including the growing dominance of coal, wind energy and shale gas from the US and a new supply of electricity via the recently-opened East West Interconnector connecting Ireland and the UK.

Cork-based gas turbine plant Whitegate cost €400m to build just four years ago.

Even after this and other adjustments forced it to lower its expectations, the €1.1bn sale price still fell €16m below the final sale price Bord Gais had set its sights on.

As a result of the sale, Bord Gais has lost its windfarms, plants and the right to supply gas to about 900,000 customers in the Republic, as well as its name.

However it retains ownership of the network of natural gas pipes. Going forward it will manage this network under the name Gas Networks Ireland, a subsidiary of utility group Ervia, which also incorporates Irish Water.

Around 450 of its staff will share an average payout of around €4,000 as part of the deal. Most will move with the company into the private sector and answer to new management.

Management said about €1bn of BGE's €1.1bn sale price will be returned to the Exchequer - but the actual amount available to taxpayers will only be around €300m. The rest will go to clear debts.

However MrNicholas said that its new fully-regulated nature should provide further cost savings in the future. Having stepped back from the unregulated energy business, he said, it will be able to borrow money much cheaper, which should save another €300m.

Sunday Indo Business

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