A clause in the management buyout (MBO) offer document for Barlo gives a pointer to why Quinn Group appeared to have left it so late before announcing its €84 million bid for the radiator and plastics manufacturer.Barlo announced on February 10th that Melgan, the MBO vehicle led by its chief executive Dr Tony Mullins, planned to offer 40 cents a share or €70 million, for the company.
This week, Quinn Group subsidiary Sarcon announced that it intended offering 48 cents a share, or €84 million for Barlo. In turn, Barlo's independent directors, Mr Niall Carroll and Mr John Farrell, said they intended recommending this offer to shareholders.
But Melgan's offer document, published on February 25th, contained a clause stating that if a third party tabled a competing offer of 44 cents or more, before March 12th, then Melgan had to match or increase that offer within two weeks, or those members who were Barlo shareholders would have to accept it. After March 12th, that clause was void.
The Quinn Group would have known about that clause, as it was a Barlo shareholder through its insurance arm, Quinn Direct. At the same time, Mr Dermot Desmond had been buying tranches of Barlo shares for an average of 42 cents.
So that begs the question why didn't Quinn, already interested in buying Barlo at a premium to Melgan's offer, simply step in with a 44-cent bid? It could have saved itself €7 million.
The answer, according to one source, is that this would have meant that Quinn would then have had to wait two weeks to see if Melgan would top 44 cents, and would in any case have found itself in an effective auction for Barlo. "If Melgan came back, they could have ended up paying 48 cents any way," the source said. Not only that, Quinn would also have had to endure sustained publicity, which the group, and its low-profile managing director, Mr Sean Quinn, do not particularly like.
Instead, the company deliberately waited for the March 12th deadline to pass. Its advisers met with Mr Carroll and Mr Farrell on or about March 17th, and at that stage let the Barlo independent directors know that Quinn was considering a bid.
On the Friday of that week, the Dublin Stock Exchange revealed that Quinn Group Family Properties, another subsidiary, had bought 14.63 per cent of Barlo from two of Mr Desmond's companies, IIU Nominees and Bottin Investments, giving Quinn more than 17 per cent of the company. Mr Desmond had built his Barlo stake up to 19 per cent. Quinn's move immediately sparked speculation that an offer was imminent.
That speculation was correct, and Sarcon showed its hand on Tuesday. As its offer will be €14 million, or 20 per cent, over Melgan's, the MBO would probably have to go as far as 50 cents a share, or €87.5 million if it is to trump Quinn.
A counter bid has not been ruled out, but seems unlikely. Melgan is not backed by a venture capital company, but by private individuals, including Dr Mullins, Barlo executive directors, the Barlow family and the McCann family, which controls 11 per cent of Fyffe's plc and runs that company.
If a venture capital company were involved, it would have the flexibility and resources to turn around and at least explore the possibility of a realistic counter bid. However, the private individuals backing Melgan do not have these resources. So, for the moment at least, Barlo looks like it will be the next addition to the multi-faceted Quinn Group.
