A management buyout of a listed company that has been run by the same two people for almost three decades is always going to throw up some corporate governance headaches.
Eamonn Rothwell, who has been chief executive of Irish Ferries owner Irish Continental Group (ICG) for 26 years, has tabled an €8 per share bid for the company along with three other executives. The independent board of the company led by chairman John McGuckian – who has been on the main board for 38 years including 22 as chairman – has accepted the bid, which values the shipping and ferry company at €1.2 billion. Rothwell has a 21 per cent stake in the business and a McGuckian family trust holds 3 per cent.
The optics created by Rothwell and McGuckian’s long tenures and their personal and family stakes are not ideal. Rothwell and fellow executive director David Ledwidge – who is chief financial officer – have correctly stepped aside from board consideration of their bid.
But McGuckian’s role on the independent subgroup of the board that recommended the offer is open to challenge because his independence can be legitimately questioned under corporate governance rules.
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The issue of McGuckian’s role on the independent subgroup is arguably compounded by the fact that, as chairman of the company, he has a casting vote at board meetings. It is not clear if this applies in the case of the subgroup but it is rendered moot in any case because the vote to accept the bid was unanimous.
ICG has previously accepted that McGuckian’s independence is debatable due to his long tenure. It has been an issue with shareholders for while. Almost a quarter of those who voted at the company’s annual general meeting in 2022 voted against McGuckian’s re-election as chairman. As a result the company was obliged to engage with shareholders on the issue.
In its most recent annual report, ICG noted that McGuckian is not considered independent under the UK corporate governance code which the company follows. The code says that a non-executive director, including the chairman, should not remain in his post after nine years.
The board said it had reviewed the issue and decided it was not a problem because McGuckian had an independent mindset and it “considered him to be both independent in character and judgment and to be of continued significant benefit to the Board”.
The board said it considered it in the best interests of the company and its stakeholders for McGuckian to continue as chairman for 2026.
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Presumably the board’s assessment of McGuckian’s independence was deemed sufficient for him to be deemed suitable to chair the independent board subgroup that was set up to consider the bid from Rothwell and ICG management.
The other members of the independent board subgroup are the company’s three non-executive directors, Dan Clague, Éimear Moloney and Lesley William. All three are seasoned executives with notable experience in investment banking and capital markets.
It is worth noting the board said it considered, but rejected, running a formal auction process after receiving the management’s bid. It decided against it because, despite approaches in recent years, no third party had progressed to a viable offer.
The reality is that the relatively small size of the ICG board means potential conflicts of interest and a certain level of circularity when it comes to governance processes and oversight is inevitable.
Rothwell, for example, would have been on the nomination committee that appointed the three non-executive directors in 2021 and 2022. But it is not unusual from a chief executive to be on a nomination committee.
Companies have systems in place to deal with these conflicts.
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The issue of McGuckian’s independence would not seem to unduly worry the market at this stage. Having gone above the offer price at the start of the week, ICG shares are now trading at €7.90. The discount to the offer price presumably reflects a view in the market that there is a small chance the bid will fall through, and little expectation of a rival offer.
The management’s bid is at premium of roughly 30 per cent to pre-bid share price and is a multiple of around 18 times last year’s earnings. The management also has its finance lined up with €455 million of preferred equity from Global Infrastructure Management funds and €798 million of senior debt arranged by BNP Paribas and Santander.
But the process has only started. The bid will have to be approved by shareholders at extraordinary general meeting and then approved by the High Court. Shares owned by Rothwell and the other members of the management buyout group will be excluded from the egm vote.
ICG has a number of large institutional shareholders, including Fidelity with 6.24 per cent and Marathon with 3.99 per cent. Their voice and that of the shareholders who opposed McGuckian’s re-election have yet to make themselves heard.
