Sunday 16 December 2018

Top of the Agenda - Shane Ross

Doctor wheels out old pals act WHY the rush? Last Monday three ageing, corpulent directors of Jefferson Smurfit were in a terrible hurry. A sudden press conference was called. Some journalists were given only 45 minutes' notice.

Three old colleagues of Michael Smurfit were wheeled out to make an "independent" announcement. The "independent" committee of Michael's old cronies had decided that the ?3.26 bid for Jefferson Smurfit Group, fronted by their old pal and patron Michael himself, was in the interests of shareholders. They were recommending it.

Wow. Hardly any need for a press conference. Five weeks ago on these pages we told you that was exactly what the lads would do.

No doubt Martin Rafferty, Howard Kilroy and Ray MacSharry had spent sleepless hours agonising over the merits of Michael's proposals. No doubt Ray, not known for his mastery of the slide rule since his days at Eircom, had taken time off from his exertions the previous week for his son Marc's Senate campaign. No doubt Martin had taken painstaking soundings from the small shareholders who have lost so much money in Smurfits over the years. No doubt Howard had brushed up on his charisma lessons.

Off the record, stockbrokers have been saying unprintable things about the deal and the trio's endorsement. Their conclusions have been the target of mockery. Last week's hurry has prompted one or two awkward questions. Why on earth would an independent committee of Michael Smurfit's board be in such a rush to judgment at exactly the moment that news of another bid was leaking to the media? Surely their duty is to extract the best deal for shareholders? What would be lost by waiting? Were they closing the door on any other offer? Stories began to circulate on Monday that David Bonderman of Texas Pacific was preparing a counter bid. Rafferty hedged, claiming that the other approach was "preliminary". Ho hum. And what is wrong with that?

Nothing, in my book. Remember the days when takeovers were real battles. Like in the case of Eircom. Or Green Properties Or New Ireland. Or Irish Permanent? Remember those days when directors of plcs automatically rejected the first approach for their company. They almost instantly poured scorn on the price. They ritually dismissed it as "derisory". They tried to flush out another bidder or extract a far higher offer from the first predator.

Not in Smurfit's case. The three boys surrendered as the first shot was fired.

Perhaps they were confused, not knowing if Smurfit himself was predator or prey?

It would be difficult for his old pals, passing judgment on the Smurfit/Madison Dearborn bid, to regard the gentle doctor as a predator. Michael's writ has always run at JSG. What has been good for Michael has been good for them; but not always so good for the poor shareholders.

And the poor shareholders have been dealt a bad hand by the gentle doctor. I should know. I am the veteran of one or two agms. I remember, just over two years ago, when the same independent director, Martin Rafferty, took the humble Doc out of a hole. Martin had to take the chair for a short spell while an awkward little sale of land to the good doctor at the K Club was being raised. The land had not gone to open auction. Instead, it had been sold to Michael. The sale had been approved by the agreeable board. Martin steered the sale through the shareholders. It was obviously his opinion, as an "independent" director, that the company had extracted the market price from Michael. We shall never know for sure as, for some odd reason, it never went to the market.

Howard was, of course, party to that decision too. Many small investors did not share their point of view. But small investors do not understand Howard. He is the superman of Ireland's incestuous investment world. Last Monday's Howard Kilroy, the man who weighed up the merits of his chum's bid and found in his favour, is the same guy who is still paid consultancy fees by the same gentle doctor himself. Howard can distance himself from Michael's largesse when he is passing judgment on Michael's bid. He just puts it out of his mind.

At last year's stormy agm, I asked the humble doctor what the "independent" director Howard did for his "consultancy" fees of ?127,0000. The JSG chairman replied that Howard advised him personally on company matters. It sounded very like a bilateral arrangement.

So Howard, the consultant, approves the deal too. That just leaves Ray, as "independent" as any man who chairs the John Jefferson Smurfit Monegasque foundation, can be.

All three reached the same conclusion. But can anyone understand why the board did not call in outside judges to adjudicate on the Michael/Madison bid?

The verdict might have been a bit different.

Outside the board I have yet to meet a sinner who believes that the bid price of ?3.26 is adequate. Michael, they say, will be buying in on the cheap. And the evidence is as clear as the open sea: there are no less than seven other private equity companies offering to join Madison in their venture. They will be kind enough to take a slice of this huge liability off Madison's hands. And why wouldn't they? These speculators, they know a bargain when it comes knocking at their door. They recognise a company with demoralised shareholders. They recognise a company with hidden value. They recognise a company which has been damaged by family control.

The stock market regarded Smurfits as flawed, not always run for the benefit of small shareholders. In future Smurfits will be a leaner outfit. And there will be little room for lavish lifestyles.

Except the chairman's beloved K Club. The symbol of grandeur and luxury is to stay in the same hands, at least until the Ryder Cup in 2006. The gentle doctor's folly is to remain intact. No doubt he will still be able to stroll on the land he loves so well, the land that he purchased from the company for an agreed amount.

So everyone will be happy: humble Michael, brother Alan, brother Dermot, son Tony, chum Martin, chum Ray, chum Howard, all the management who are also buying in on the cheap. Madison Dearborn and their seven equity partners will be ecstatic.

Not quite everyone. The only forgotten ingredient the shareholders might have won a better deal if the three lads had not been in such a mysterious hurry last week.

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