Wednesday 21 August 2019

Richard Curran: 'Boris Brexit uncertainty scuppers billionaires' Barchester sale'

Conservative Party leadership candidate Boris Johnson. Photo: PA
Conservative Party leadership candidate Boris Johnson. Photo: PA
Richard Curran

Richard Curran

The binary choice of a bungling Boris or a commie Corbyn is starting to affect investment in the UK in a big way. During the week, it emerged that Australian bank Macquarie had pulled out of a £2.5bn (€2.8bn) deal to acquire Barchester Healthcare Group, a chain of 200 nursing homes backed by Irish billionaires JP McManus, John Magnier and Dermot Desmond. It appears that Macquarie was close to finalising the deal and had all but signed off on it, according to the Financial Times, when it changed its mind.

Uncertainty around Brexit, and the approach taken by the likely new UK prime minister Boris Johnson, are seen as factors. The FT quoted one person close to the bank as saying that "given the exchange rate is all over the place, it is not the right time".

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Factors likely to affect the exchange rate are Johnson, Brexit and the possibility of another general election resulting in a Labour government led by a very left wing Jeremy Corbyn.

Barchester has been on the market since last year and has been owned by a consortium of investors, including the three Irish billionaires, for some time.

Other shareholders who appeared on the share register as of the end of 2017 included the family behind Brennans Bread, former meat mogul Paschal Phelan, former Ceann Comhairle Seán Barrett, and Chris McHugh, the Kilkenny-based businessman and former finance director of NCB Stockbrokers.

Some UK analysts are beginning to warn that the markets are failing to price in the risk of political chaos in Britain in the months ahead.

For example, expected six-month volatility for sterling against the euro is around 7pc. In the six months ahead of the Brexit referendum, it was almost double that. In the six months before the original March deadline, it was about 10pc.

So, even in the event of a cliff-edge no-deal Brexit, the market is pricing in a relatively modest impact on valuations.

Macquarie has had plenty of time to consider all of this and the various political machinations that may arise in the coming months, or for much longer, in the UK.

There are other factors at play in the Barchester deal, given that several other large nursing home businesses are also on the block. This comes at a time when local government is cutting back on what it pays to private nursing home firms.

Four Seasons, which owns 322 homes, has been owned by US hedge fund H/2 Capital Partners since it ran out of cash in late 2017. Bids have been submitted for the business but a deal has yet to be concluded.

In Barchester's case, it has reduced its bank debt and grown its profits in recent years, which places it in a pretty strong position to wait out the uncertainties that may arise, such as currency fluctuations and the risk of entering the politically unknown in the UK.

Of course, Messrs Magnier, Desmond and McManus can afford to wait.

Ryanair and pilots: it is either a feast or a famine

What a turbulent ride running an airline really is. Less than two years ago, Ryanair was offering pilots 20pc pay increases as a shortage of senior staff began to kick in at several operators.

Then on Thursday, Ryanair announced that it may close bases and is offering unpaid leave to pilots because of delayed delivery of new aircraft, and a tougher trading environment.

The difficulties surrounding the new Boeing 737 Max have delayed delivery and, according to the airline, it faces major challenges, which may require downsizing and/or closures this winter and next summer.

Rising fuel costs, cut-throat competition and Brexit uncertainty are all weighing on airlines. Delays to the new Boeing 737 are just icing on the cake.

The tough Ryanair message was delivered by the group's chief operating officer, Peter Bellew, who Reuters reported during the week is set to leave the company at the end of this year.

Bellew had previously worked at Ryanair before heading off to become chief executive of Malaysia Airlines.

He returned to the Irish company just 18 months ago as the new COO, and was seen as a potential successor to Michael O'Leary.

But it has been all change and no change at Ryanair, where the O'Leary Show will continue for a few more years.

Ryanair is planning a new group structure, with four chief executives running its four separate divisions, but all answerable to the Mullingar man.

The search has been on to find a chief executive for the main Ryanair operation. Bellew and two other senior executives were tipped as likely candidates for that job.

It was also speculated that whoever ran Ryanair, as opposed to Ryanair UK, Ryanair Sun and Laudamotion, would be in pole position to take over from O'Leary when he does retire.

It isn't clear what plans Bellew has or his precise reasons for leaving Ryanair, but there will be lots of interest in where he goes next.

It is extraordinary that O'Leary has not only managed to remain as chief executive for more than 25 years, but executives tipped as possible successors tend to leave.

His joint deputy CEOs, Michael Cawley and Howard Millar, were both seen as potential successors, but decided not to stick around. The new group structure and the departure of Bellew probably now reduce the likelihood of an insider taking over the reins when O'Leary does retire.

Larry Goodman gets on the pitch at Green Reit

Billionaire beef baron Larry Goodman has appeared on the share register at Green Reit, the listed property group currently up for sale. It isn't surprising that one of the Goodman family investment vehicles, Vevan, has built up a small stake.

It fits the pattern of his share buying in several respects. Goodman, and indeed Vevan, have done this before. They have acquired a 2.1pc stake in Green Reit at a time when the company is in play.

Vevan did the same with Independent News & Media (publisher of this newspaper) when it was seen as a possible takeover target. The Goodman family were also big buyers of One51 shares ahead of a planned flotation some years back.

With its investment in INM last year, the Goodman family vehicle made a 35pc return on its 2.1pc stake when the newspaper publisher was sold to Mediahuis, bagging itself a profit of around €800,000.

In the case of Green, it is once again a 2.1pc stake, currently valued at €27m. The only surprising thing is that Vevan didn't move sooner.

The Goodman family were never likely to make a bid for INM themselves, but they have a strong background in commercial property and might have spotted the Green Reit opportunity at an earlier date.

Green Reit shares were trading at around €1.52 in early April when the board announced it would look for a buyer of the company, or several buyers of its assets.

Vevan has only breached the 2pc disclosure threshold in recent days and has been buying at around €1.81. This is very close to the €1.83 per share valuation placed on the company's assets by itself last December. A buyer may find it hard to justify paying a hefty premium to that price.

If Vevan had bought into Green back in April, it would be sitting on a €4.2m profit. Perhaps the investor wanted to see what way the ball would drop. Green invited bids for the group or for individual assets.

It has only become clearer in recent weeks with several expressions of interest that the group is likely to be taken over.

Unless Goodman has his eye on one or two Green assets and wants to position himself for them. Goodman outbid Green for the former Bank of Ireland headquarters on Baggot Street, when he bought it in the depths of the recession.

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