The financial weakness of his Irish businesses in 1995 created significant challenges for Mr Denis O'Brien at around the same time as he was bidding for the State's second mobile phone licence.
Communicorp, the holding company for his radio and telecommunications businesses, was eating up cash as the businesses expanded. He had given 33 per cent of Communicorp to US venture capitalists, Advent International, in return for $10 million in funding, in 1994. Much of the money was used in funding the expansion of Esat Telecom.
He did not want to further dilute his shareholding and thought that if he waited until after the 1995 licence competition, his business would increase in value and the same amount of money could be raised with a less-dilutive effect.
By early to mid-1995 the businesses were again in need of a cash injection. As part of the joint-venture deal, Mr O'Brien signed with Telenor on June 3rd, 1995, in relation to the bid for the mobile licence, he gave a commitment that Communicorp would source a guarantee for part of its side of the venture's costs.
After trying the banks Mr O'Brien again turned to Advent, and it struck hard terms. In return for a loan of $5 million, Mr O'Brien had to agree an interest rate of 30 per cent per annum. "Our trousers were down," he told the tribunal this week.
Mr O'Brien also held talks with Advent in relation to the guarantee he needed for Telenor. Advent agreed to write a Letter of Comfort stating it would provide up to £30 million to Communicorp to assist it fund its part of the Digifone project. In return, Advent was given the right to take up 5 per cent of Digifone. A deal between Advent and Communicorp was struck on July 12th, 1995. A condition of the deal was that Telenor would be satisfied with the letter.
On August 10th, 1995 Mr O'Brien was invited by Mr Dermot Desmond to attend a Glasgow Celtic match in Glasgow. On the way home from the match the two men discussed Mr O'Brien's funding issue, according to Mr O'Brien. Specifically the two men discussed Mr Desmond's IIU Ltd underwriting Communicorp's financial commitment to Digifone, in return for a stake.
Following numerous meetings and discussions, a deal was struck whereby IIU, in return for underwriting all of Digifone not owned by Telenor, would get a 25 per cent holding in the company. It was now necessary to get rid of Advent. Telenor had told Mr O'Brien that the Advent comfort letter did not constitute a guarantee and was not satisfactory to them. This letter was used by Communicorp to make the Advent agreement void. Communicorp was able to "burn its bridges with regard to the financing arrangements previously put in place, and to depend solely on its arrangements with IIU", according to Mr O'Brien.
Before the licence was issued to Digifone, Mr Desmond's shareholding was reduced to 20 per cent at the insistence of the then Minister for Communications, Mr Michael Lowry.
