Business Irish

Tuesday 10 December 2019

Sara McCabe: KPMG partners face a bath on Tesco punt

Christoph Mueller and Howard Millar
Christoph Mueller and Howard Millar

Sara McCabe

KPmG knows a thing or two about making profits, but its partners aren't expected to make much from the sale of a major asset that some of them invested into in 2007.

Just before the Celtic Tiger gave its last roar, around 40 top people at the audit giant, plus several outside investors, privately banded together to buy Tesco's main Irish distribution centre in the north Dublin suburb Donabate, through a company they formed called Abatewood Limited.

Directors included KPMG head of transaction services David Wilkinson and head of real estate Jim Clery.

Now Abatewood has decided to sell up. The Tesco centre was bought at the top of the market, so it is unlikely to make much of a profit. And Abatewood took out loans of around €125m from Bank of Ireland to buy it, so there is a lot of debt to pay off. But Tesco is a good tenant to have, as it is thought to be committed to a 15-year lease, paying €8m in rent a year. And the property market is on the up again.

Several parties are understood to be interested, all based overseas. My money is on a South African hedge fund that's rumoured to be particularly keen.

It will be interesting to see how the distribution centre is sold. Abatewood could just sell it outright and use the proceeds to clear its debts. Or, the debt itself could be sold, transferring control of the underlying asset. This would only happen with the bank's consent. It would also leave the lender exposed to a foreign debtor - something it may not be happy with.

One source suggested that the decision to sell could signal KPMG's interest in pitching to audit either Bank of Ireland or Tesco - conflict of interest rules might limit their ability to do this if Abatewood still owned the asset. But the bank is not likely to tender for the next couple of years, another source said.

 

As Mueller leaves, is it Millar time at Aer Lingus?

All eyes are on Aer Lingus and who will replace Christoph Mueller. The airline's chief executive has just announced plans to leave the carrier after close to six years.

But chairman Colm Barrington, the Dalkey-dweller behind aircraft leasing company FLY Leasing, tells me the board is in no rush to find Mueller's successor.

"We have 10 months to find the lucky person before he departs," Barrington explained. Recruitment experts are being called in to help.

Of course, one very qualified person has just conveniently become available.

It's Howard Millar, the Ryanair chief financial officer, who announced his plans to leave his long-time employer recently - specifically because he's seeking a chief executive job, which just isn't an option at Michael O'Leary's airline.

Paddy Power is putting its money firmly on Millar (above right) for the Aer Lingus job, giving him at 4/1. Coming in at number two is Alitalia chief executive Gabriele Del Torcho on 8/1, then Aer Lingus's head of strategy Stephen Kavanagh.

But Barrington chuckled when I floated the Millar suggestion . Mr Millar, he pointed out, is joining Ryanair's board - which might be a problem for takeover target Aer Lingus.

His Ryanair contract was also probably littered with non-competition clauses.

It's unfortunate, as Millar is just the kind of financial whizz-kid Aer Lingus needs.

 

Revamping of Windmill will respect U2's fans - Hibernia

What's to happen to Windmill Lane - once home to the music studio where U2 recorded some of their most seminal albums?

The site recently fell into the hands of Hibernia REIT, the property investment trust whose shareholders include big names like communications guru David Putnam.

Hibernia announced plans to buy Windmill Lane along with an adjoining office block for nearly €30m in May and the deal closed last month. It is now deep in talks with a design team, Hibernia's suave CEO Kevin Nowlan said last week.

The site has planning permission for 125,000 sq-ft of offices as well as retail space and 15 apartments.

Given that it is prime real estate, sitting on Google and Facebook's doorsteps in the heart of Dublin's technology epicentre, it won't be short of tenants.

Windmill hasn't been graced by Bono and company for some time. It was taken over by the Dublin Docklands Development Authority a decade ago. As part of that deal, U2 was to get a studio in the planned 'U2 Tower' on Britain Quay - but that was never built.

But Hibernia's team know that the band's diehard fans still have a special place in their hearts for the building. What about keeping a studio there, I asked?

"We've no plans for that," said Nowlan. "But we know we will have to have cognisance of the history of the place," he added, joking about angry fans showing up at his doorstep.

Windmill is not the only building with history in this trendy area. Just across the road is Boland's Mill, the massive derelict factory that was taken over by Eamon De Valera during the 1916 Rising. A huge vacant space in an area central to Nama's development plans, it is tipped to hit the market within 12 months.

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