Friday 14 December 2018

Naughten looks set to survive the fallout from an extraordinary series of events

A phone call to a minister is the latest twist in the tale of how INM's business was conducted, writes Fearghal O'Connor

The offices of Independent Newspapers on Talbot Street. Photo: Steve Humphreys
The offices of Independent Newspapers on Talbot Street. Photo: Steve Humphreys

Fearghal O'Connor

When lobbyist Eoghan O Neachtain's number popped up on Denis Naughten's mobile phone screen, the Minister would never have imagined that - 16 months later - he would find his political career hanging on the nuances of what was, or was not, said in the following few moments.

The call - the details of which the Office of the Director of Corporate Enforcement (odce) has alleged in an affidavit were subsequently communicated to INM's biggest shareholder, Denis O'Brien - is just the latest twist in the tale of how INM's business was conducted during a crucial period for the publisher.

In the Autumn of 2016, there was a lot going on behind the scenes at INM. Key decisions about the publisher's future were being made inside and outside of Independent House after a difficult few years for staff, shareholders and management.

The subject of the call, like much else of what the State's corporate watchdog is now probing, revolved around one of a number of deals or proposed deals that were supposed to mark the beginning of a new era for INM.

Many of the allegations in the ODCE report stem from the corporate moves and decisions to realise new-found potential at INM after a long period of financial and boardroom turmoil at the company.

With circulation and advertising under pressure across the sector, staff had endured cost-cutting, redundancies and pension cuts. But the company had restructured and freed itself of a €420m debt. Shareholders could see the potential for growth and perhaps a dividend, while management saw a chance to make the deals and investments that could give the publisher a sustainable future.

Denis O'Brien. Photo: Tony Gavin
Denis O'Brien. Photo: Tony Gavin

In money terms the new era had really kicked off in March 2015 when INM sold its 18.6pc stake in Australia and New Zealand-based APN News & Media for about €121.3m. That deal had given INM a cash pile and the firepower to chase the deals that are now, three years later, under intense scrutiny.

Indeed, one element of that APN sale itself has been raised as a concern by the ODCE. In its affidavit to the High Court, the corporate enforcement watchdog has said it wants to investigate a "success fee" related to the deal that the ODCE said was proposed to be paid to Island Capital Management Ltd, a company it stated was owned by Denis O'Brien. The proposal was later dropped.

The APN sale had marked the end of INM's previous strategy of operating across a range of international markets to instead focus on the growing digital media space closer to home. INM chief executive Robert Pitt said at the time that the APN sale would enable INM "to repay all of its indebtedness and focus on its island of Ireland business strategy, build on current performance and position it for further development at a time of economic recovery in Ireland."

As part of this push, the company took full ownership of the car sales website CarsIreland.ie, in which it had previously bought a 50pc stake. It also bought a stable of four magazines in Northern Ireland in early 2016.

Leslie Buckley. Photo: Steve Humphreys
Leslie Buckley. Photo: Steve Humphreys

But by the autumn of 2016 the focus was on bigger Irish acquisitions that would have expanded INM's reach in two particular areas: local newspapers and talk radio.

As new strategies started to form, the company's shareholders were not all necessarily in agreement as to what should happen to INM's cash pile, with demands that dividends should be paid alongside the acquisition strategy that management was intent on pursuing. On November 10 2016, INM announced to the stock market the restructuring of its balance sheet to finally eliminate its deficit.

This, according to an analyst briefing note that morning from stockbroker Goodbody, would facilitate dividend payments or other shareholder returns: "Although management has indicated a strong preference for the pursuit of acquisitions, we have for some time believed a cash return would be in shareholders' interests," the analyst wrote.

But November 10 was to be a significant day in the company's corporate history in another way. That day, or perhaps the next, lobbyist Eoghan O Neachtain, who worked for INM's PR representative Heneghan PR, made his fateful call to Minister Naughten's mobile phone. He told him the breaking news that the Competition and Consumer Protection Commission had approved INM's bid to acquire a major local newspaper group and that the fate of the proposed acquisition was now in the Minister's hands.

Denis Naughten. Photo: Steve Humphreys
Denis Naughten. Photo: Steve Humphreys

Two months previously, in early September 2016, INM had announced that it had agreed a deal to purchase the portfolio of regional newspapers owned by the Celtic Media Group. The move was always likely to generate controversy, whatever the outcome. The National Union of Journalists had immediately called on Minister Naughten to use new powers to investigate the implications of the proposed acquisition.

"Given INM's dominant position in the national newspaper sector and the dominant role of the chief shareholder in the independent broadcasting sector there are compelling reasons for an investigation into the full implications of this proposed acquisition," the union said.

O Neachtain's news meant that both men knew that it now fell to Minister Naughten to decide whether any such so-called "phase two" investigation of the Celtic Media acquisition by the Broadcasting Authority of Ireland would happen.

"I expressed a purely personal view that the likely course of action would be a referral to a phase two assessment in accordance with the guidelines in light of the diversity and media plurality assessments required and in light of the scale of the proposed acquisition, its geographical concentration and the extent of ownership of regional media by Independent News and Media at that point," Minister Naughten told the Dail about what he said next to O Neachtain on the phone call.

In its High Court affidavit, according to reports, the ODCE has since alleged that O Neachtain briefed his boss, PR executive Nigel Heneghan, on the phone call that he had had with the Minister.

Eoghan O Neachtain
Eoghan O Neachtain

In turn, the ODCE has alleged, Heneghan alerted INM's then chairman Leslie Buckley by email to the Minister's thinking. The State's corporate watchdog has claimed Buckley then emailed Denis O'Brien in a move that it said may amount to disclosing "inside information" and was, it has claimed, potentially a breach of stock market rules.

Last week, Minister Naughten defended his actions: "This is not inside information but simply a reflection of the legislation. I had no inside information to give," he told the Dail. But, the Minister conceded, "it may have been preferable if the conversation had not taken place".

Buckley has previously issued a statement to say that he will "robustly defend" his position against "each and every allegation".

O'Brien has not commented on the allegations in the ODCE affidavit.

The High Court heard O'Brien has written to the corporate watchdog to complain about the leaking of material.

"I intend to hold you fully and personally responsible for all the alleged leaking," Mr O'Brien wrote.

The Celtic Media plan was not the only potential acquisition under discussion at INM in September 2016. Project Devalero, according to reports, was the name assigned to a proposed acquisition by INM of Newstalk, the radio station wholly owned by Denis O'Brien's Communicorp Group.

The company has said that this aborted acquisition was never discussed at board level. It did, however spark off an extraordinary and very public row between INM chief executive Robert Pitt and its chairman Leslie Buckley.

By the end of November 2016 the company had released a statement on the matter: "noting recent media speculation, confirms that an issue arose between the Chief Executive Officer and the Chairman in relation to the terms of a possible acquisition by the Company."

Valuations ranging between €10m to €35m for the loss-making radio station were considered during the short-lived negotiations, according to the ODCE's affidavit. Pitt, who would subsequently include his recollection of the row in a protected disclosure to the ODCE, had initially valued the proposed Newstalk acquisition at some €12m and INM's own advisers, Davy, valued the station at €14m.

But IBI, advisers to O'Brien's Communicorp, the owner of the station, had proposed an initial valuation for Newstalk at between €30m to €35m.

Pitt told the ODCE that he and Ryan Preston, INM's chief financial officer who would also later make a protected disclosure, met Buckley late that October to discuss the issue.

Buckley is alleged to have told the pair that he would "do the deal regardless" and that a valuation of €14m for Newstalk was "insulting to the major shareholder", namely Mr O'Brien.

The ODCE affidavit is also reported to state that Buckley also said that O'Brien was "entitled to a reward for bailing out INM".

Pitt's subsequent protected disclosure would kick off, in late 2016, an initial ODCE investigation into corporate governance issues at the company. This first protected disclosure about the Newstalk proposal would be followed by a second disclosure to the ODCE the following August 2017 in which he would report an issue that he had first been told about by an INM employee in May 2015.

That revelation about a suspected data breach at the company would bring a whole new dimension to a developing explosive corporate story that was encompassing an ever growing cast of characters. The ODCE would later allege in its affidavit to the High Court that in 2014 a large quantity of data - including emails and other records - was removed from INM's premises and that the INM Board was unaware of this until August 2017. Last week, lawyers for the ODCE told the High Court that significant concerns remain about the purpose of the data removal and it has said it suspects that some of the data was accessed by parties with links to Buckley and O'Brien. There was also evidence INM's data may have been searched against the names of certain persons including journalists and two counsel to the Moriarty tribunal.

The fallout from this extraordinary series of events continues. Minister Naughten looks set to survive the onslaught of political attacks following the revelations about his phone call because opposition TDs are said to be afraid of collapsing the Government before the abortion referendum.

But the next round in the ODCE's court application to appoint inspectors to INM to investigate whether its affairs were conducted in an unlawful manner - including whether the interests of Denis O'Brien had been prioritised over those of other shareholders - will be heard next month. In that hearing, INM will seek leave for a judicial review, challenging the procedures followed by the ODCE in deciding to apply to the High Court to have inspectors appointed.

Last Friday, INM chief executive Michael Doorly confirmed to staff at a town hall meeting that the costs associated with the process would come from company reserves rather than operational budgets. The big question staff and management will be wondering is just how much of the fiscal firepower that was expected to deliver a new future will be left when the dust finally settles?

Sunday Independent

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