Comment

Saturday 2 August 2014

Judgment shows not even O'Reilly beyond a reversal of fortune

Richard Curran

Published 28/06/2014|02:30

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Tony O’Reilly with Garret FitzGerald and Henry Kissinger
Tony O’Reilly with Garret FitzGerald and Henry Kissinger

There is a real sense of shock among many people that Anthony O'Reilly has found himself on the wrong side of a High Court judgment and been forced to sell so many of his personal assets – including all three of his Irish homes.

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We have seen multi-millionaire developers and others crash spectacularly in the last five years. But many people have held a perhaps naive notion that something like that simply couldn't happen to O'Reilly, that he was somehow beyond all that.

O'Reilly was not only so rich for so long, but he appeared to embody the wealth, power and lifestyle of a billionaire of international standing. His image, his stature, his charm and his confidence create a real air of invincibility about him.

His ambition for new deals never waned but neither did his substantial appetite for leverage in many of the companies he controlled.

By the early 2000s Independent News & Media was a very successful but heavily indebted business which continued to pay out large dividends, of which O'Reilly was the largest beneficiary. Big dividends provide cash for shareholders, which in turn helps support the share price, which in turn increases the value of their stake.

It seems like a virtuous circle but if things start to go wrong it can turn into a vicious one. In O'Reilly's case, Waterford Wedgwood's firm belief that products should be made in the place of their heritage (Waterford and Stoke) contributed to the breakdown of his business empire. If O'Reilly had scaled back manufacturing in Waterford and at Wedgwood in Stoke, and made the products in low-cost locations in Asia, he might not have sunk around €500m of his own money into the business.

Reputational damage to him in Ireland would have been enormous, but the business might have stayed afloat.

O'Reilly borrowed heavily over several years to keep funding Waterford Wedgwood, long after the company's balance sheet and business model were broken. He completely believed the business could be turned around with its existing business model.

Borrowing money to fund Waterford Wedgwood meant he had to pledge his assets as security on the loans. As long as he had the dividend stream from Independent News & Media, worth around €14m per year, and he ended up being right about Waterford Wedgwood, this gamble would pay off.

But he couldn't see what was becoming increasingly obvious to others. INM could not afford to keep up its dividends and Waterford Wedgwood was irreparably broken.

Part of the business genius of O'Reilly has been his ability to identify opportunities and then use the sheer weight and force of his personality and intellect to get them over the line.

But that success brought about its own weaknesses. He lost touch with how most people live, including his customers. He was far too slow to change direction because to do so might have been a very public admission that he had made a mistake.

He believed his position at INM – where together with allies he controlled 35pc of the company – was unassailable. Very expensive share buy-backs by INM to support the share price not only made it more expensive for Denis O'Brien to buy shares, but cost the company a fortune.

Like many long-time executives in any business, he became too attached to acquisitions INM had made under his stewardship. He could have cut his losses at Waterford Wedgwood by fundamentally changing direction sooner. But these are criticisms levelled at him by spectators of events with the benefit of hindsight.

As a young business journalist starting off over 20 years ago, I viewed O'Reilly as being at the top of a very small elite group of Irish business people who had made it on the world stage.

Meeting him was a slightly intimidating but always highly engaging experience. Yet for all that, when I was business editor of the Irish Independent for six years, neither he nor anyone around him sought to influence anything I wrote about, including reporting the financial results of the parent company, Independent News & Media. He likes journalists and loves newspapers.

At one social event at his Kildare stately pile meeting former 'Washington Post' editor Ben Bradlee, British politicians Paddy Ashdown and Peter Mandelson and former JFK adviser Chuck Daly.

I remember meeting him in his office at the INM headquarters in Dublin, as the company announced its acquisition of a shareholding in an Indian newspaper group, Jagran Prakishan.

It was 6pm on the day before Christmas Eve. O'Reilly, enthused at the new venture, sat drinking Diet Coke and explaining how he had been working on getting that deal over the line for several years. At that end of our meeting he gave me a copy of 'Paper Tigers', a book of interviews with newspaper tycoons written in 1993. He wrote an inscription on it saying: "As Wellington said, 'and now India'. Hope you enjoy this. It shows the perils and rewards of publishing."

Yet, just a few years later, Jagran was to be one of the businesses INM was forced to sell as it ran into difficulty.

Always protective of his reputation, the events of recent weeks will be a very difficult blow to someone who rose to such enormous heights.

Irish Independent

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