Gavin O'Reilly hired man at centre of O'Brien High Court case as his PR
Bad blood started with Eircom, writes Richard Curran
The High Court injunction proceedings taken by Denis O'Brien against two former Independent News & Media (INM) executives and their public relations firm, is one of the aftershocks of a corporate earthquake that first kicked off almost 10 years ago.
On January 10, 2006, the Irish Stock Exchange was notified that telecoms billionaire Denis O'Brien had bought a 3pc stake in INM. There had been some tension between Denis O'Brien and Tony O'Reilly in the run-up to that purchase. But the arrival of the telecoms billionaire on the share register of O'Reilly's biggest single business interest took things to a new level.
At the time Tony O'Reilly's shareholding in INM was valued at over €500m. His position in control of the country's largest newspaper group seemed completely unassailable. What followed was a long steady corporate battle between two of the country's wealthiest men which took place on two fronts. One front was the media where O'Brien kept criticising the stewardship of INM under O'Reilly. The second took place on the share register where O'Brien kept increasing his stake at an ever-increasing cost.
Within two years O'Brien had splashed out an estimated €300m in return for around 15pc of the company. Publicly INM did bat back criticism of the company from O'Brien but did not seriously engage with its newest highly acquisitive shareholder.
O'Brien had argued publicly that INM, under the stewardship of the O'Reillys, was deeply flawed and needed change.
Tony O'Reilly made virtually no public comments about O'Brien's criticism of the company he controlled but left much of that to his son Gavin, who at times ended up in a testy war of words with O'Brien.
The tension between the two businessmen was traced back on the O'Reilly side to his consortium's victory over O'Brien in the battle to take over Eircom in 2001.
O'Brien had a different set of grievances with the company and was deeply angry with newspaper coverage of the Moriarty Tribunal in INM titles much of which had coincided with the Eircom takeover battle. He also felt the company was badly run.
The INM annual shareholders' meetings became very tense affairs and a sort of ritual of public criticism of management from O'Brien representatives followed by robust defence by management.
The O'Reilly camp felt it had little to worry about from the public criticism because as long as Tony O'Reilly, the management team and a handful of other shareholders could rely on more than 35pc of the votes, there was little by way of real impact that O'Brien could achieve.
O'Brien kept buying shares and demanding reform. His scope for influencing change was limited despite the fact his INM investment was costing him several hundred million euro. O'Reilly had not figured on the fact that the company might actually be in serious trouble and would need to raise new money to pull through.
Everything changed with the crash. INM's high level of debt at the time left it vulnerable to a downturn. It had to re-finance some bonds in its €1b debt mountain. The credit crunch made this increasingly difficult, especially when it was involved in a massive €100m share buy-back programme, which O'Brien believed was being done to make his share purchases more expensive.
Eventually in 2009 the situation had become critical for the company. Tony O'Reilly sat down face to face with Denis O'Brien and eventually a deal was hammered out. O'Reilly would step down as chief executive of INM and leave the board, after 26 years. His son Gavin O'Reilly succeeded him as chief executive. As a major shareholder O'Brien would nominate three appointees to the board - Lucy Gaffney, Leslie Buckley and Paul Connolly. A rapprochement was reached and both sides decided to work together to resolve the company's financial challenges.
It didn't last long. Tensions surfaced again as O'Brien accused Gavin O'Reilly of doing solo runs and discussing strategy with his father, still a major shareholder but no longer on the board. O'Reilly denied this was the case.
O'Brien disagreed with the plan to turn things around and accused the board of ganging up on his three board appointees. All the while he was ready to put more money into the company as it grappled with re-financing a €200m bond repayment. When Gavin O'Reilly became chief executive he hired Karl Brophy as head of corporate affairs and content development. Brophy was an Independent group journalist who had worked in Ireland and later edited one of the newspaper group's titles in South Africa. He had form with O'Brien having been successfully sued by him for libel years earlier when Brophy was a journalist.
The open conflict between O'Brien and the board of INM became more like a war of attrition around the board table. O'Brien's nominees wanted a speedy sale of non-core assets, cuts in spending and a major push into digital content.
Eventually the financial position of the company came to a head and it required a massive debt restructuring. O'Brien stepped up and continued to buy shares while O'Reilly found his own personal financial circumstances had deteriorated. He had lost hundreds of millions on Waterford Wedgewood, had borrowed to fund defensive share investments in INM, whose share price had fallen by over 95pc from its high.
Gavin O'Reilly eventually stepped down as chief executive in 2012. He received a payment of €1.87m on his departure which was then challenged in the High Court by INM director and O'Brien nominee, Paul Connolly.
Some months later Brophy had his INM contract terminated, when Gavin O'Reilly's successor, Vincent Crowley, took over as chief executive. Brophy sued INM in the High Court for unfair dismissal.
Brophy claimed O'Brien was behind his dismissal because of their previous history. In evidence Crowley told the court that for some time before his departure, Gavin O'Reilly and Brophy were working to try to back up O'Reilly's view that O'Brien had significant non-performing borrowings with the former Anglo Irish Bank. Crowley said the two men had put a significant amount of time and effort, which was ultimately unsuccessful, into looking into this allegation so that it could be put into the public domain.
After three days of evidence Brophy's action was settled.
He acknowledged that Crowley had made the decision to make him redundant in order to save on costs, as opposed to O'Brien, while the company acknowledged that Brophy had not been involved in any misconduct.
Denis O'Brien is the single biggest shareholder in INM. Its debt has been largely wiped out and it continues to trade on the stock market.