The decision by Digicel, the Bermuda based telecoms company owned by Denis O'Brien, to cancel its potential $2 billion (€1.8bn) share flotation on the US stock market, is a major setback for the company. It is also a damaging blow to its owner and his business reputation. Digicel unexpectedly abandoned plans for an initial public offering (IPO) some 72 hours before trading in the company's shares was due to open in New York.
Digicel blamed volatile stock market conditions as the main reason for its decision. In recent weeks the IPO market has performed poorly, against the background of uncertainty about US interest rates and China’s currency devaluation. Nevertheless, the cancellation by Digicel caught financial markets somewhat by surprise. The IPO failure reflected both scepticism about what Digicel offered and the high price being sought for its shares. Investors, it would seem, were made an offer they could refuse and many did so.
In 1992, Guinness Peat Aviation (GPA), then the world’s largest airline leasing company, cancelled its IPO in the US having overpriced the share offering. The company subsequently collapsed. Unlike GPA, Digicel and Mr O’Brien will survive this botched share flotation. The company may return to the market when conditions are less volatile and with more modest ambitions, having learned some painful lessons from this embarrassing experience.
As well as the high price, potential investors may have been concerned by the structure of the Digicel public offering. A successful IPO, potentially the second biggest US flotation this year, would have allowed Mr O’Brien retain 94 per cent control of the company – worth an estimated $2.8 billion – with just 60 per cent of the equity in return for accepting cash from investors, who could exercise no control and little influence over the business. Mr O’Brien may have overplayed his hand.
The challenge facing Digicel’s owner was to convince investors to buy into a company with substantial debts and sluggish revenue growth but with great potential. As the company’s high levels of debt have made further borrowing difficult, much of the flotation proceeds were intended to pay down debt, with some $400 million identified for acquisitions to boost growth. For Digicel, this reversal creates difficulties which a successful flotation would have overcome.
Mr O'Brien has been dogged by national controversy ever since the report of the Moriarty Tribunal which found that former communications minister Michael Lowry had helped him to secure a mobile phone licence for Esat Digifone 20 years ago. This is a finding that Mr O'Brien, a billionaire andIreland's wealthiest man, has always disputed but which, nevertheless, continues to cast a shadow on his reputation.