Sunday 25 February 2018

Hold out for Valentia offer


WHAT should Eircom shareholders do now? Nothing, this week. Or next week. Do not respond to last week's eIsland offer document. Wait until Valentia's offer arrives through the post at the end of August. If there is no further bid (and this is highly unlikely) accept Valentia's offer.

At 1.365 it is the best cash bid. Even the resourceful Denis O'Brien is unlikely to find 1.50 per share the amount required just to unlock 35 per cent holder Comsource. The game is up.

Small shareholders are still haemorrhaging, despite the benefits from the Sir Anthony O'Reilly-Denis O'Brien battle. We have reason to be grateful to them both. Without them the share price would now be down below the 1 mark.

We are losing our shirt on the legacy of Eircom's board the giveaway sale of Eircell to Vodafone. Our Vodafone shares are down nearly 40 per cent since they surrendered Eircell. Every cent we won from the O'Reilly-O'Brien takeover fight was lost on the futile sale of the mobile arm.

Valentia won because they were more professional and more thorough. As a close observer, it was apparent that their operation was always more controlled. They played the perverse rules of this particular takeover game far more cleverly.

They tied in the employees' 15 per cent from day one, ensuring that O'Brien would never achieve the magic 80 per cent figure. They never let the Comsource group (35 per cent holders) break out of their commitment. O'Brien was forever the underdog. Tony O'Reilly's cool experience in the corporate game always made Valentia the front runners.

Small shareholders still have valid reasons for discontent. The most recent chapter the sale of the fixed line division is no cause for grievance. The price is at the top end of all analyst estimates.

But before that, we were treated to a lesson in the worst excesses of Irish corporate life; a fairytale beginning followed by a realisation that the only rewards guaranteed were for the company's bosses; that we had no say in the incompetent Vodafone deal; that the 11,000 workers had more clout than the 450,000 small shareholders; that we were cannon fodder for the big institutions. Yet this sad tale may have lighted a fire for a new shareholder democracy.

How VHI is rich and poor

HE HAS probably hosted more boring dinners than Bertie Ahern.

He is a chartered accountant, past president of the Irish Insurance Federation, past president of the Insurance Institute and the Irish Association of Investment Managers. He is a director of Ireland's stodgy Stock Exchange.

It gets worse: he is a council member of the Institute of Chartered Accountants and the International Federation of Health Plans. His biography boasts that he has 28 years in the "insurance industry" whatever that is. All that is missing is life membership of the employers' group, IBEC. Enter Vincent Sheridan, chief executive of the VHI.

Name an institute, a council, a federation, an association. Sheridan has bored for it. Last week he bored for the VHI.

The VHI has won a 15 per cent increase. Gay Mitchell TD forced the Dáil Committee on Health to demand an explanation. Sheridan needed all his accountancy skills to explain how the VHI was doing badly and doing very well at the same time.

First Sheridan disputed the 15 per cent figure. A bit odd. Nine per cent this September plus six per cent last January normally adds up to 15. But not in the VHI's book. The accountant said we should divide by two because the VHI was refused a rise last year. Subtract another 2 per cent the amount they say they lose on risk equalisation and the increase only comes to five per cent.

Then Sheridan began to expand: the VHI made profits of 28m last year, up 23 per cent. Customer numbers were now over 1.5m. Bravo.

The point was not lost on Mitchell. How can a successful company, he asked, need a 15 per cent hike? And once the VHI had been granted their beloved risk equalisation, would they give the punters back the 2 per cent? He added that he "resented being taken for a chump".

Sheridan waffled about handing back the 2 per cent. Which means that there is no chance. He then changed tack, pleading that the VHI's reserves were inadequate. When the accountant wants to puff the company he trots out the profits; when he wishes to plead the poor mouth he calls in the reserves. Not a bad trick.

Yet, in the annual report, chairman Derry Hussey insisted that the "strength of the board's balance sheet continues to improve and there is now a comfortable margin between its reserves and the minimum solvency ratio required..."

But Hussey is, according to himself, expecting 63.5m from the taxpayer.

Hold it. Here is a company whose bosses claim it is thriving. It is demanding 15 per cent from its customers. It is seeking 63.5m from the taxpayer.

The truth is embarrassing. The VHI is a sick semi-state company. It remains a quasi-monopoly. Many of its inefficiencies are disguised by its good fortune to be operating from a position of dominance in an expanding market. As TD Paul Connaughton pointed out at the committee last week, many customers are joining out of fear, believing that the VHI will enable them to leapfrog the hospital queues.

Any normal commercial company would take the obvious road: cut costs. VHI has done the opposite. Last year, despite the position of its reserves, its staff numbers increased from 554 to 668, its operating expenses soared by 77 per cent. Mr Sheridan dismissed many of these costs as "exceptionals".


All those boring dinners were not in vain.

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business