Has Denis O’Brien really gone down without a fight? Perhaps facing into what would inevitably become a bruising and expensive legal battle with bondholders weeks before his 65th birthday was just a bridge too far?
he impending loss of control of the jewel in O’Brien’s one-time business empire, the Digicel telecom brands strung across the islands of the Caribbean, is a massive blow both financially and to his prestige. The seeds of the loss date back to a stalled stock market flotation in 2015 but took root as the era of cheap debt ended definitively over the past year.
Even so, letting control slip away from him, as now appears to be the plan, is a big shift for a businessman who fought a string of high-profile battles, including, famously, a scrap to the financial death with Tony O’Reilly which ranged across bids for the former Eircom and, later, for the whip-hand at INM, which published this newspaper.
It may be that having watched his former nemesis reeling from that last battle into bankruptcy and old age, O’Brien has opted to simply toss over the keys.
But there was a scrap to be had if O’Brien was minded. The complexity of the Digicel business, with operations straddling a mix of legal jurisdictions and a web of interlocking companies and debt obligations means wrestling the business away from an unwilling O’Brien would not have been easy for any bondholder. And the Irish businessman has form when it comes to driving tough deals with the bond markets and bankers. He has twice faced down bondholders at Digicel, securing a big debt extension in 2019 and a write-down in 2020 without losing a shred of equity in the business.
This time it is different. A request for a grace period to negotiate what initially looked likely to be a so-called ‘amend and extend’ agreement has quickly been overtaken by news that bondholders are moving to take outright control.
As a minority shareholder and director, Denis O’Brien will no longer rule the Digicel roost
Details of just how that breaks down, including the precise stakes that will be assigned to each class of creditor as well as how much of the business Denis O’Brien keeps, are still being hammered out. Execution risk remains. But the direction of travel is clear, at least in the medium term. As a minority shareholder and director Denis O’Brien will no longer rule the Digicel roost.
The alternative he faced was ponying up fresh cash to try to retain a telecoms business that, even with a debt deal, has an uncertain future. Every business is now facing a potential decade of higher debt costs but Digicel has other massive issues coming down the track.
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The crisis in Haiti, the group’s second biggest market and the one closest to O’Brien’s heart in many ways over the past two decades, is unprecedented. A collapse of government and rise of gangsterism is pushing the beleaguered nation towards failed state status.
Few outside investors were willing to bet on Haiti when O’Brien made his first moves there, fewer still would now.
Even in better markets, like Jamaica and Bermuda, any telecom operator faces the challenge of making money from smartphone customers now accustomed to using free apps like WhatsApp and Viber for messaging while getting those customers on to more lucrative data deals: it requires significant investment.
Meanwhile the strengthening dollar means it is tougher to repay US debt from local-currency customers. The fight might not be worth having right now.
Digicel transformed O’Brien from Irish multi-millionaire into a global billionaire at home at Davos or mixing with the Clintons. An astonishing $1.9bn of dividends from the telecoms empire helped reinforce that status by funding huge investment back in Ireland including in the aftermath of the financial crisis when prices and many of his business rivals were on the floor.
He still has control of an array of lower profile but valuable assets
Its loss must be a bitter blow. On the upside, unlike other high-profile entrepreneurs who have lost key assets he will not carry a lingering debt hangover from Digicel. He also still has control of an array of lower profile but valuable assets including the Quinta de Lago resort in Portugal, the Beacon Private healthcare business in Ireland and industrial services group Actavo, formerly known as Siteserv.
He has also taken a lot of money off the table over the years not only from Digicel dividends but through some astute Irish property moves – notably calling the top of the commercial property market in 2018 in an interview with this newspaper.
And the deal with bondholders may yet have an epilogue. O’Brien is down but not entirely out of Digicel. As a director, and as one of the biggest individual shareholders in a soon-to-be much-less-indebted telecoms group, he stands to share in and help shape any potential for recovery.
He’ll also be keenly aware that bond investors rarely see themselves as long-term business owners. If and when Digicel is steadied the business will be for sale.
With a seat on the board and a stake in the business Denis O’Brien may see his best bet in hunkering down and keeping his remaining powder dry until the storm now raging in the business cycle blows itself out.