There has been an overarching theme to this story; time and again information was withheld from IBRC over the sale of Siteserv. And, as the deal came ever closer to being completed, this pattern showed no sign of slowing. 

On March 5, 2012, Siteserv sent IBRC an indicative schedule of proceeds it could expect from the sale of Siteserv to the businessman Denis O’Brien. On March 7, IBRC wrote back requesting more information. The indicative schedule, according to the IBRC Commission’s draft report, was “seriously misleading”.

Siteserv said the cash available to it post the sale was €51.5 million, when it was in fact €51.95 million. The estimate of transaction costs included €430,000 to cover Siteserv’s running costs while the sale closed, which the bank should not have had to pay. Siteserv also said that Davy’s fees were €500,000, when the company knew it was actually €275,000. The schedule said that O’Brien’s headline price of €48 million had remained constant, when Siteserv knew he had reduced it to €45 million in his final offer letter of March 1, 2012, before increasing it again after negotiation. The working capital adjustment of €1.8 million in favour of O’Brien was not disclosed. 

In IBRC, Karl Cleere, prepared a presentation for the bank’s credit committee relying on this information from Siteserv. The bank’s credit committee decided not to recommend the transaction to the bank’s board. Instead, it asked Siteserv to explain why Anchorage had been rejected in favour of O’Brien. It also wanted to know more about €5 million that was going to be paid to Siteserv’s shareholders to get the deal approved. (We will return to this issue later).

And finally, the committee asked for the deal to be referred to the bank’s CEO Mike Aynsley, because of the “headline risk” of selling a business to O’Brien that involved a large write off, when there was a competing bid from Anchorage. In the draft report Aynsley expands upon this risk: “I think the fact that he was one of the largest borrowers for the bank, he was someone who was very well known publicly, there is an awareness around him having the problems that he’d had previously with the Moriarty Tribunal and that during these difficult times that all of a sudden he was coming along and purchasing a loan and the nature of just the noise around his name would mean there would be critics and people would throw stones.”

Aynsley said there was a “red flag that there could be enhanced reputational risk involved. So, we needed to make sure that we got the checks and balances on that. It was a very large amount that we were writing down”.

On March 13, 2012, Robert Dix and Hugh Cooney, the senior independent director and the chair of Siteserv respectively, wrote back. Their letter said O’Brien’s bid was the only firm offer, and there was less execution risk attached to it. A comparison was again made between O’Brien and Anchorage, giving the impression that Anchorage would want a €3 million reduction in respect of a tax issue the company had in Britain. It said Anchorage would also have received the €1.8 million working capital reduction, while omitting to say O’Brien had received this after negotiations that saw him agree to reverse his €3 million price decrease.

It said it also believed Anchorage was likely to seek another €1.3 million reduction due to other tax issues, even though Anchorage had never mentioned such a large number. It added Anchorage was likely to seek another €500,000 deduction in relation to tax accruals, which again Anchorage had never mentioned. It also said Anchorage was likely to seek €1.5 million in reductions for debt-like items, which O’Brien wasn’t seeking. 

On March 13, 2012, the bank’s credit committee met again. It considered all the deductions that Siteserv said Anchorage was going to seek, and concluded this made its bid “potentially lower” than that of O’Brien. The credit committee – based on the inaccurate information provided to it – decided to recommend O’Brien’s bid.

Mike Aynsley attended this meeting and asked that KPMG and Davy write letters to the bank confirming they were satisfied with the integrity of the sale process. Aynsley asked for these letters because of the nature of the deal, and not because he had any doubts at that time about its integrity. Aynsley said the reason he attended was: “The board expected me to be comfortable with what went to the board.” 

Approval for the Siteserv transaction now moved up to IBRC’s board on March 15, 2012. The board of IBRC was told there was a risk O’Brien would walk from the deal if Anchorage was let back into the process to carry out more due diligence. IBRC’s board expressed disquiet about the €5 million payment to shareholders in Siteserv but accepted it. Aidan Eames, a director of Siteserv and a solicitor, said: “While not ideal, there was a real risk that these shareholders could at least frustrate if not delay the time critical sale process if they were not compensated to some degree so as to have them acquiesce to the proposed transaction.”

The board approved the sale of Siteserv to Denis O’Brien. The board of IBRC did so without knowing of Harvey’s financial interest in O’Brien’s bid, McFadden’s involvement, and the “misleading information” furnished to IBRC by Siteserv, the commission said. The IBRC Commission, in its draft report, said IBRC did not know “fundamental” matters about the transaction. “The bank approved an offer from Mr O’Brien in circumstances where a competing offer from Anchorage had been made which could have resulted in a payment to the bank of up to €5.8 million more than it received from Mr O’Brien’s offer,” it said. 

IBRC received a fixed amount of €44.3 million for Siteserv, based on calculations received from the company. Unknown to the bank this created surplus cash of €800,000 which was used to pay bonuses to a small number of Siteserv directors. IBRC said it would not have approved these bonuses if it had known of them. Brian Harvey was paid a bonus of €350,000, Niall Devereux was paid €175,000, Robert Dix was paid €100,000 and Hugh Cooney was paid €60,000. It is important to note that Devereux did not know he was to be paid a bonus until early May 2012, after the shareholders of Siteserv had approved its sale at an egm on April 5, 2012. However, Cooney, Harvey and Dix had been discussing the potential for bonuses since November 2011. 

In its draft report, the IBRC Commission described these bonuses as “lavish” and more than Davy and KPMG’s entire fees combined, while the company defended them as not out of line with what was common in business deals of similar size and complexity. 

In addition to the bonuses that it didn’t know about, the bank also paid Siteserv’s running costs of €430,000 while the sale was closing, which it was not obliged to do. The IBRC Commission also said in its draft report it believed the €5 million paid to shareholders was too much given where Siteserv’s share price had fallen to. The bank it estimated could have got between €700,000 and €2.1 million more, if this number had been recalculated again as the deal closed. Adding everything up the IBRC Commission said this created the “possibility” that IBRC could have recovered €8.7 million more from the sale.

Unravelling Siteserv: Part 1 – The rise, fall and sale of a boomtime business

The IBRC Commission has almost concluded its mammoth probe into the sale of Siteserv to Denis O’Brien and circulated its second draft report to witnesses. Today, we publish the first of a three-part series by Tom Lyons into the deal.

Unravelling Siteserv: Part 2 – From a bootcamp in St Moritz to a management incentive plan

In the second part of our series on Siteserv, Tom Lyons reveals how two senior Siteserv figures sought to secure lucrative share deals from the sale and reports how the IBRC Commission uncovered a “pattern of secret negotiations”.

The €5 million to Siteserv shareholders

On the face of it Siteserv’s shareholders had backed a loser. The company had effectively failed. As such, market forces would say they deserved nothing from the sale of the business to Denis O’Brien. However, the problem was that some of its shareholders were well resourced, so they could have potentially sued the company or otherwise tried to stall the sale. Des Carville of Davy, as advisor to Siteserv, had presented a paper on December 15, 2011, to Walsh, Cleere, Hobbs, Dix and other people from Davy and KPMG examining the issue of what incentive was required to get shareholder approval. 

Carville said shareholders in public companies typically expected to be offered the average value of the previous twelve months, which in Siteserv’s case was €5 million. The Commission draft report said that by the time the sale of Siteserv actually happened three months later, in March 2012, this average had fallen sharply. It brought in an expert witness who said he believed IBRC should have appointed its own advisors on this matter, and not relied on Davy. IBRC said it was often criticised for spending too much on expensive advisors. The expert witness also maintained that Davy had clients among Siteserv’s shareholders, so it might have wanted a higher price in order to preserve its own reputation.

The issue about Davy’s motivation is a highly subjective opinion, without supporting evidence that this was ever a consideration by the stockbroker. Alan Dukes, a former finance minister and the chairman of IBRC, said of the €5 million payment: “It was a figure that seemed to us to be rather steep but if that was the price of getting the deal done, then, and you know avoiding an even bigger write-down, then that was the way we made the decision.” 

The IBRC Commission said IBRC could have recalculated the amount to be paid to shareholders as the deal closed and if this had happened it might have received between €700,000 and €2.1 million more. It said this was a “collective failure by all persons within the bank dealing with this matter – i.e., the lending team and the credit committee.” It said the €5 million figure was not “set in stone” and should have been reviewed downwards as Siteserv’s share price continued to fall. It said on this occasion there was “prima facie evidence of a material deficiency” in the lending team and members of the credit committee of IBRC.

In relation to its board however it found no such evidence, as they were entitled to rely on the advice and recommendations of the lending team and credit committee.

The IBRC Commissions’s calculation of the potential loss to the bank in relation to the €5 million payment to shareholders is a headline estimate. As some of Siteserv’s larger shareholders owed it significant sums, it is possible they used their Siteserv dividend to repay their IBRC debts taking some of the sting out of it. It is not clear however what happened in this respect.

A “hijacked” meeting

In the aftermath of the Siteserv EGM on April 11, 2012, approving the sale of the listed company to Denis O’Brien, executives from IBRC contacted Brian Harvey, the Siteserv chief executive. The bank was inquiring about his future terms of employment with Siteserv as he owed the bank €1.7 million personally. Harvey emailed O’Brien asking for “divine intervention”. 

On April 27, 2012, O’Brien arranged to meet a senior executive in IBRC, Richard Woodhouse, in Cafe Java on Leeson Street, Dublin 2 to discuss other business. Woodhouse was in charge of O’Brien’s loans, so this was a perfectly normal interaction. Unknown to Woodhouse, O’Brien decided to invite Harvey to join them. Woodhouse was not pleased. He told the Commission he felt his scheduled meeting had been “hijacked”. He declined to engage with Harvey and told him firmly IBRC would not be offering him a write-off on his personal debts.

O’Brien for his part said he knew IBRC was selling off loan portfolios at a discount to funds, so figured it might do the same for individuals. “I went in pretty strongly with Mr Woodhouse but I soon realised it was a firm no. You know, it was a red no. Not a black no,” he told the Commission. O’Brien stopped pursuing the issue. Harvey left the meeting after a short period, and afterwards O’Brien stopped all efforts to help Harvey settle his personal borrowings from IBRC.

No material deficiencies 

It is only in the 21st chapter of the draft IBRC Commission report that things really turn to IBRC. This is a very detailed chapter which assesses the performance of the bank in relation to Siteserv. It finds numerous things including that there was “no prima facie evidence of any material deficiency” in the performance of the bank and its team when it decided to appoint Walter Hobbs as an observer to the sales process and in their duties in respect of the first round of bids for Siteserv. 

It finds the bank acted “appropriately” when it heard Denis O’Brien had entered the bidding process and it was right to ask Woodhouse to step back to avoid any conflict of interest. It also finds there was “no reasonable basis” for the bank to object to O’Brien being allowed to bid. The report said Mike Aynsley, the CEO, was right to take steps to mitigate the “headline risk” of selling Siteserv to O’Brien. 

In its draft report, the commission found that there was no evidence of any “material deficiency” in relation to IBRC up until the consideration of second round bids. The Commission said it agreed with Pat Walsh who had said he wanted three bidders brought into a third round of bidding, and that Walsh and Cleere of IBRC had behaved correctly in relation to the transaction. In relation to the credit committee meeting on February 23, 2012, to grant exclusivity to O’Brien, the IBRC Commission said that, based on the information supplied to it, the committee was “reasonable” to grant this. 

However, it said the committee should have enquired more about the status of exclusivity at this meeting, and that the committee did not seek more information about the €5 million that was proposed to be paid to shareholders. In relation to the board of IBRC’s decision to approve O’Brien’s purchase of Siteserv, the commission said: “There was no prima facie evidence of any material deficiency in the performance of their functions by the board of IBRC in relation to the approval of the Siteserv transaction.” It also found that other issues like the payment of bonuses were not the bank’s fault, as it knew nothing about it. 

IBRC also looked at the issue of Arthur Cox advising both Siteserv and O’Brien. It said IBRC was right to seek written assurances from Arthur Cox that it had the appropriate protections in place.

Key findings about the key bankers

In its draft report, the IBRC Commission makes a detailed assessment of the roles of the various IBRC bankers involved in the deal. The below are its findings on some of the main players:

Walter Hobbs: Hobbs was IBRC’s “eyes and ears” overseeing the sale of Siteserv. The Commission said at a sale subcommittee meeting of February 10, 2012, Hobbs made an “inappropriate intervention” when he said that Siteserv should not wait for IBRC’s consent before granting exclusivity to O’Brien. The Commission said it was “of the view” Hobbs should have told Siteserv to await IBRC’s decision. It also said that on February 27, 2012, Hobbs should have insisted IBRC was allowed to consider Anchorage’s higher bid for Siteserv, before the company continued its exclusivity. The Commission said it accepted Hobbs’ contention that his motivation for doing this was to ensure a timely completion of the deal. After considering other issues too, IBRC said there was “prima facie evidence of a deficiency by Mr Hobbs in the performance of his duties for and on behalf of the bank.” 

Karl Cleere: An IBRC executive working on the sale, the IBRC Commission in its draft report said Cleere was an “assiduous and diligent banker,” and that he was a “reliable witness.” It said he exercised his duties “honestly and diligently and in a proper and professional manner.”

Pat Walsh: Karl Cleere’s boss also working on the sale. The IBRC Commission said Walsh “exercised his duties honestly and diligently and in a proper and professional manner”. Like Cleere he was a “reliable witness” and there was no evidence of any deficiencies in his performance. 

Richard Woodhouse: Woodhouse was a senior banker responsible for large clients including Denis O’Brien. The IBRC Commission said Woodhouse had only a “limited” role due to Aynsley’s request that he step aside from any decision making to avoid the potential for a conflict of interest as the manager of O’Brien’s loans. Woodhouse did attend the board meeting where the board of IBRC approved the sale, but there was “nothing improper” about this. It said there was no evidence he had an “improper or unduly close relationship” with O’Brien. An allegation made in the Dail that Woodhouse had tipped off O’Brien to increase his first round bid in order to stay in the race, the Commission said, was simply untrue. Another claim that he had given O’Brien favourable interest rates was also untrue. As it turned out Woodhouse had increased O’Brien’s rates. The IBRC Commission said Woodhouse had acted “honestly and diligently and in a proper and professional manner at all times”. He too was a “reliable witness”.

Tom Hunersen: A senior banker asked to step into Woodhouse’s role as the boss of Walsh and Cleere, Hunersen was mainly involved in the Siteserv sale towards the end. The IBRC Commission dismissed as false allegations he had an “inappropriate relationship” with O’Brien or anybody else connected with Siteserv. It said Hunersen was working on a huge number of other deals at the time, and he was involved in the Siteserv deal as much as could be reasonably expected. It said Hunersen exercised his duties “honestly and diligently and in a proper and professional manner at all times.” It also said he was a “reliable witness”.

Jim Brydie: Jim Brydie was head of group lending in IBRC. He said he was now living in the UK and was too busy to attend the IBRC Commission. The Commission said it had found “no prima facie evidence of any material deficiency” in relation to his performance, but it expressed its frustration at his “unacceptable” refusal to attend.

Mike Aynsley: The chief executive of IBRC had, according to the Commission, only “limited” involvement in the Siteserv transaction. It said Aynsley wanted to ensure the sale was conducted properly and with integrity, and he had taken steps to try and ensure this. It said there was no evidence that Aynsley’s relationship with O’Brien “influenced” his decision-making in relation to Siteserv. The Commission also considered an Irish Times article by John McManus on March 26 2012. McManus appeared to suggest the old Anglo board was somewhat similar to the new IBRC board, before putting in a reference to the sale of Siteserv to O’Brien. This article led to questions being raised with the bank by the Department of Finance fuelling a bubbling tension between some civil servants and the bank. The Commission said it found no basis for McManus’ statement that Aynsley was “chumming up to big Anglo clients”. It said it was “reasonable” for Aynsley to have a good working relationship with O’Brien as he was one of the bank’s biggest and best customers. In summary the Commission said Mike Aynsley had acted “honestly and diligently” and in a proper and professional manner at all times. It also said he was a “reliable witness”.

Alan Dukes: A former Minister for Finance and leader of Fine Gael who chaired IBRC, Dukes at all times behaved “entirely properly”. The IBRC Commission said he was a “hard-working, committed and effective chairman of the bank who exercised his duties honestly and diligently and in a proper and professional manner at all times.” The Commission said he was a “reliable witness” who had attended nearly all hearings as its work went on for years. The Commission said this indicated his “extraordinary level of commitment to the work of the Commission”.

Other board directors: All board directors of IBRC “acted appropriately and in the best interests of the bank, with a view to minimising the loss to the bank, by approving the proposal made to it, on the basis of the information before it.”

The Commission’s assessment of IBRC

After six and a half years of investigating IBRC, the Commission found only two issues it could criticise the bank on. 

One: IBRC’s credit committee could have found out sooner that O’Brien had been granted exclusivity if the bank’s lending team had told it that it knew there was de facto exclusivity some time earlier. Equally the credit committee could have inquired more about O’Brien’s exclusivity to determine its status. The Commission said it would be “unfair to blame any one individual for this matter.” It said it was due to an “unfortunate lack of communication” between the credit and lending functions of the bank.

Two: The payment of €5 million to Siteserv shareholders. The IBRC Commission said the bank could have “revisited” the amount to be paid as the deal closed, and it might have saved between €2.1 million and €700,000 if it had done so. Again, no individual is blamed for this.

The Commission said that while these two issues were material deficiencies, it was a responsibility that should rest not on any individual but on the bank’s lending team and credit committee “collectively.” “However, in an overall assessment the Commission concludes that the bank’s executives worked honestly and diligently throughout the Siteserv transaction to protect the interests of the bank,” the IBRC Commission concludes.

“Not commercially sound”

The IBRC Commission finds in its draft report that there were “two parallel processes” running when it came to the sale of Siteserv. One was “above the surface” that IBRC knew about, and the other was “below the surface” that the bank didn’t know about. This below the surface world it said, “undermined the integrity of the sale process”.

Events that occurred unknown to the bank included “Mr Harvey’s concealed financial interest in Mr O’Brien’s bid.” It said: “The Commission has found that at key stages in the sale process, Mr Harvey improperly favoured Mr O’Brien’s bid and put his own personal financial interests ahead of the interests of the company and its main creditor, the bank.”

The Commission said it was “extraordinary” that Harvey and McFadden ended up with 15 per cent of the company O’Brien used to purchase Siteserv without Harvey’s board, the sale sub-committee, the company’s advisors and Hobbs / IBRC knowing.

“The Commission has determined that it can be concluded that Mr Harvey’s actions were so manifestly improper and wrong that they undermined the integrity of the Siteserv process,” it said in its draft report.

The impact of information being not given promptly or withheld from the bank combined with it being given information that was misleading, as well as the decision to in its opinion overpay Siteserv’s shareholders, meant the IBRC Commission estimated the bank “could” have received up to €8.7 million more if it was “commercially sound”.

The IBRC Commission finds in its draft report that IBRC sold Siteserv to Denis O’Brien in “good faith,” but “based on misleading and incomplete information provided to it by the company”.

It added: “The Commission has also determined…the Siteserv transaction was, from the perspective of the bank, so tainted by impropriety and – in respect of Mr Harvey’s concealment of his material interest in Mr O’Brien’s bid – wrongdoing that the transaction was not commercially sound.

“The Commission finds that it can be concluded that the Siteserv transaction was not commercially sound in respect of the manner in which it was conducted, the decisions made, and the outcomes achieved.”

Postscript

The IBRC Commission under Judge Brian Cregan has certainly produced a thorough draft report.

It is over 1,000 pages long, and within its pages is a drumbeat of a deal “tainted with impropriety”. 

The work of the team in the Commission has to be acknowledged in getting to this point. They were not given an easy task and the issues they considered were more complex than expected.

For example, there is an entire section of its work that looks at trading in Siteserv’s shares in the run up to its sale. This finds there is “no evidence that any unusual trading in Siteserv’s shares occurred”, and the volumes being exchanged was down to Davy staff transferring Siteserv shares from personal dealing accounts to their pension accounts, for tax planning reasons.

The work involved in reaching this one conclusion – of the many tasks given to the IBRC Commission – was immense.

But at the same time, it is impossible not to question the sheer time involved in getting to this point. The entire Siteserv deal took place in the guts of six months, yet we’ve spent 13 times that so far, trying to find out what happened. 

During the years the IBRC Commission has carried out its work there has undoubtedly been a price paid by many of those caught up in it. 

Alan Dukes, the former chair of IBRC, has spent years sitting in attendance at the Commission, when he should have been enjoying a deserved retirement. 

The three overseas bankers who joined IBRC – Mike Aynsley, Richard Woodhouse, Tom Hunersen – have had their reputations unjustifiably damaged, as has other former employees of the bank as well as its entire board. 

Employees of Siteserv like its then CFO Niall Devereux have also had a question mark hang over them, despite their behaviour being impeccable. 

The IBRC Commission estimates its costs at €30 million, but when third party costs are included this could rise to €70 million or more. Viewed strictly on the basis of cost, the state is likely to spend €70 million to find out why it might have missed out on a little over ten per cent of that amount. This is crazy. 

If, however, the IBRC Commission leads to a real cultural change in how Irish business is done in all quarters then it would be worth it. But we know from previous tribunal reports, this doesn’t seem to happen. The specific repercussions of the report also remain to be seen.

From the beginning the IBRC Commission was given an impossible task, and the fact it has nearly concluded its investigation into Siteserv at all is remarkable. 

The original terms of reference given to the Commission under then Taoiseach Enda Kenny were farcical. It was so broad its work was made unworkable. As a reporter in The Sunday Business Post I said this at the time, but the state allowed things to trundle on regardless. 

A decision has to be made soon – several Taoisigh on from Kenny – on whether the IBRC Commission should be allowed to continue on to look at the next deal (of dozens) it has been asked to deal with. There is no way it should be, unless the IBRC Commission can make a very strong argument that it has rock solid evidence that must be investigated in relation to a particular deal. And even then, it might be better if it just referred its suspicions on to the relevant authority and asked it to investigate.

The state now needs to reflect on how it investigates business deals, as it has cost too much and taken too long to get to almost the end of its investigation into Siteserv. The IBRC Commission did get many answers – for which it must be commended – but we’ve had to wait a long time and a final report by the IBRC Commission still isn’t out, so it will be nearer to seven years by the end.

Ireland has many brilliant entrepreneurs and business people. Values like integrity are important to them. We have a history of being an open economy that welcomes inward investment. Good business people and companies deserve to know that doing business in Ireland is fair, and that there will be timely consequences when that isn’t the case.

They deserve not to live in what was described by one underbidder for Siteserv as a “banana republic.”