The directors of First Active beamed for the cameras at the Stock Exchange . The shares had already begun to appreciate in value, and their long-held ambitions of becoming major league players had been realised.
By close of business last Tuesday, First Active's three senior directors, group managing director John Smyth, deputy managing director Tony Shanahan and operations director Paul Reville, were also substantially richer.
The three, who were awarded lucrative options to buy First Active shares at the issue price of £2.25 each after three years, had already realised a combined paper profit of more than £500,000. Not bad going by anyone's standards. And if the share price continues to rise over that period, the flotation of the former First National Building Society will have set them up nicely for the rest of their lives.
First Active members, some 216,000 of whom were in line for free shares, learned the day before they were to be issued at £2.25 each.
The news, when it came around lunchtime, was disappointing. Just a month before, First Active had declared the shares would be worth at least £2.65 when they began trading on the Dublin and London markets, and were more likely to be priced closer to £3.80 each.
With members entitled to receive an allocation of 450 free shares for each qualifying mortgage or savings account they held, they were rubbing their hands and making plans. Soon they would come into a windfall of between £1,170 and £1,700, just for being in the right place at the right time.
And so when First Active declared the most likely price they would get for their shares the seasoned carpetbaggers believed it. The other flotations had all yielded shares at or above the indicative price. Anything less than £2.65 just wasn't possible. In fairness the company had continually stated the price would depend on market conditions. When First National finally declared its intention to seek a listing on the stock market in September 1997, share prices were soaring in value.
As the board of directors gathered to set the price last weekend, Wall Street had taken another tumble and financial stocks in Dublin and London were taking a hammering.
To make matters worse the big investment institutions, the major insurance and fund management companies, which First Active needed to take a stake in the new company, were less than enthusiastic about buying the shares and drove a hard bargain. They were only prepared to pay a certain price for the shares, and that price was well below what First Active was asking.
In this scenario many believe the directors should have pulled the flotation and waited for a fairer climate to trade the shares.
The US investment bank, Goldman Sachs, aborted its plans to float the company some months earlier. Its partners had no intention of selling out for anything less than top dollar, and in this market they were pretty convinced they would have to settle for less. Similarly, the Irish recruitment group Parc postponed its flotation, again having taken fright from the jittery markets.
First Active was steely in its resolve.
Mr Shanahan pointed out that timing wasn't the primary concern for the conversion of a building society because, unlike the flotation of a family business, it didn't have to deliver the highest price to its members.
At its last annual meeting in May they had overwhelmingly given it the mandate to change. At no point was the flotation to be based on the shares achieving a certain price. This was always going to be at the directors' discretion.
Mr Shanahan said a postponement would set its plans back by months and would only prolong the uncertainty for customers and staff. It would also incur further costs. To date First Active has spent a staggering £21 million to raise net cash of £83 million, so any further expense would be difficult to justify.
The pros outweighed the cons, Mr Shanahan said.
The nightmare scenario for First Active was that the shares would take a dive when they went on the market. The flotation would be declared a disaster.
The £2.25 price, they decided, would give members just over £1,000 each for surrendering their ownership, and while it wasn't £1,700, it was still money for nothing. The institutions would get a good deal and the market would reward them for their efforts, sending the shares higher.
ON TUESDAY the losers were the more than 13,000 former members who opted to take cash immediately for their shares. They had to settle for £2.25 each and will end up with just about £1,000 after brokers' commissions. If they had waited to sell them even one day later they would have been up to £300 better off. But then £1,000 is better than nothing.
The executive directors, on the other hand, knew they were always going to be winners.
By Tuesday they had arrived. They were now senior executives of a substantial publicly quoted company and could command potential earnings and rewards such status affords.
Not that First Active wasn't already providing an attractive package, but the plc route, with its share option schemes, was always going to be more lucrative.
Mr Smyth earns a basic salary of £214,200, Mr Shanahan receives £157,500 while Mr Reville's basic salary is set at £113,295. The three executives are also paid an annual cash bonus on achievement of profit growth targets, and the package includes medical insurance, a company car and participation in the executive pension scheme, and their contracts provide for a payment of twice their total remuneration package if they leave the company.
First Active's non-executive directors also earn substantial fees, with chairman Prof Michael MacCormac earning £60,000, vice-chairman, Mr John Callaghan, £30,000 and the others taking annual fees of £25,000 each for their service to the company. At some point in the future some of the non-executive directors may also end up with sizeable share options themselves, if approved by shareholders.
At First Active's annual meeting, disgruntled members will no doubt castigate the board for selling out the company for what the market has already shown to be a rock-bottom price. But in the main, its members will be happy enough, particularly if the share price can sustain further gains.
For many this would be their second or third bite at this particular cherry, having already taken a few bob from the Irish Permanent and Norwich Union flotations. Now that First Active has surrendered its mutual status, carpetbaggers looking for their next killing will find their options in relation to building societies now extremely limited.
The largest remaining mutual, the EBS, continues to reaffirm its status as a mutual and is not expected to come to the stock market in the foreseeable future. Its members are not in line for any immediate windfalls, but EBS argues they do realise benefits such as lower interest rates on mortgages and more attractive rates on their savings because of its structure.
Irish Nationwide, though, would dearly love to follow First Active on to the stock market.
Its managing director, Mr Michael Fingleton, continues to lobby for a change in building society legislation which would allow it to sell on a large block of its shares to another institution after a stock market flotation.
If this is granted, Irish Nationwide will almost certainly make its move and its executives will immediately play their trump card. When it comes to convincing members to approve a flotation, a free share giveaway is highly persuasive.
