Doubts remained, however, both inside and outside GPA. There were rows with the bankers at Nomura, Goldman Sachs and Schroders over the pricing of the forthcoming flotation, with Tony consistently pushing for a price that his advisers thought was overvalued by up to 30 per cent. Even on the day after the third-quarter results were announced the press were reporting that the flotation ‘might only raise’ $750 million—about half the amount previously expected. ‘People who think this is a British Gas-sized float have got it wrong,’ one of Tony’s advisers unhelpfully briefed the media off the record.
Much of the rumpus surrounding the flotation concerned the position of Tony’s own shares. As part of the IPO, Tony would be paid £21 million in cash to convert his A shares, which carried special dividends, to ordinary shares. It was a huge sum and one that revealed Tony’s profit-sharing deal, which netted him just under 10 per cent of annual profits (£12½ million the previous year). All told, Tony’s personal stake in GPA after the flotation was estimated at a quarter of a billion dollars. ‘He built up the company from a worth of £50,000 to over £2 billion,’ noted Gerry Grimstone of Schroders. ‘I suspect shareholders think it’s cheap at half the price.’ In fact there was considerable anger about the move among shareholders, who protested that Tony, by insisting on a high share price, was putting personal gain above the interests of the company.
Relations were further marred by a series of public spats over the unpopular attempt by GPA to ‘lock in’ its shareholders for a set period after the flotation. One institutional investor, the Public Schools Employees’ Retirement System of Pennsylvania, even threatened to withhold consent for the IPO unless concerns about Tony’s own position were addressed.
Such PR misadventures, said the Sunday Times business correspondent, Alan Ruddock, allowed a ‘cloud of doubt’ to settle over the GPA flotation. From a potential share price closer to $30 earlier in the year, market analysts had by the spring downgraded it to about $22, with some even going as low as $18. There was a consensus that the combination of how GPA had handled the flotation and intrinsic problems with the company itself had knocked about 10 per cent off the share price. Added to a deep scepticism about leasing companies, particularly in London, where the markets had already been burnt by Atlantic Computers, this meant that GPA now found itself in danger of being perceived as an unwanted, unlucky stock.
At the end of April, as Moody’s put the company on credit watch, Tony attempted to reverse the negative trend by wooing financial institutions and business correspondents at a series of dinners in London. It wasn’t a job that suited him particularly well. For all his reputation as an outsized personality, Tony was in many ways an introverted character. He didn’t often seek the limelight, he could appear stiff and uncomfortable when speaking at formal public occasions, and he detested dealing with the media.
This was partly the result of a certain self-consciousness about his lack of education, which he felt made him less dexterous in conversation than he might have wished (not least because he had to curtail the swearing that peppered his private conversation). Yet it was also the result of contempt. He appreciated the importance of public and media relations in theory. That, after all, was why he had employed the likes of Eugene O’Neill at Ryanair. But in his heart Tony despised the press, never really believing that he needed to explain himself to those he viewed as mediocrities who had never been tested in the entrepreneurial fires of business. Who were they to question him, a man who had built a business worth billions from nothing?
In their turn the British media seemed baffled by Tony. ‘Mr Ryan is an intensely shy and private man,’ concluded the Times, ‘the opposite of the high-profile, garrulous Irish entrepreneur typified by … Tony O’Reilly and Michael Smurfit.’ Appearing to make matters worse on these occasions was Maurice Foley, who was ‘decidedly tetchy’ when confronted with rumours about rows behind the scenes.
In May 1992, a month before the IPO was due to be launched, GPA issued an uncharacteristically gloomy pathfinder prospectus. It told the bleak story of a world slowdown in aviation, the over-supply of aircraft, the inevitable rise in unleased aircraft and even customers in financial difficulties. Moreover, there was no way of knowing how long the over-supply would last. All told, noted one analyst, it gave the impression of a company that had been ‘dragged kicking and screaming to the market in one of the worst years on record for the industry.’
The effect on Tony was profound. ‘It’s not the way I would write up a business,’ he complained bitterly as the prospectus was launched. Everything was ‘very grey, very stark’. But in truth it seemed to reflect his own dark mood. Some of this was personal, especially because of the way the press had raked up old stories about Cathal’s time as a pilot at Air Lanka, when he had been suspended for ‘indulging in pugilistic activities while intoxicated’. Although Tony remained ultra-bullish in public, those close to him noted that he was increasingly down as the IPO approached. There were tirades about the mauling that GPA was getting among industry analysts and fund managers, especially in London. There was despair at the apparent near-collapse of demand in the key Japanese market. And Tony, under pressure from investors to consider his own role, even began to doubt whether he was the right man to lead GPA into a new era. Perhaps he had done as much as he could. Ryanair, for all its manifest faults, remained a labour of love. GPA was work, and, in fairness to himself, it felt like a job done.
‘Coming up to the IPO, Tony said that he was getting tired and maybe it was time for someone else,’ says Jim King. No doubt he would be ‘president for life’, or something similar, but in truth Tony was already unhappy at having to adapt his leadership style to be in line with the extra accountability that would be demanded of a public company. He had already separated out the roles of chairman and chief executive, handing over the latter to Maurice Foley. Now Tony began sounding out a number of prominent individuals about replacing him completely, including Bob Crandall at American Airlines, and some of these even met with members of the board. But as so often when this question had arisen before, no-one, least of all Tony himself, could quite bring themselves to make the final break. ‘Tony’s ambivalence about whether he was really ready to cut the umbilical cord led to that being dropped,’ King says.
In fact Tony’s ambivalence had more to do with not being able to convince his natural heir to take the job. Later he would confide to Gary Wendt of GECC that he had been determined to appoint ‘a young Irishman (early 30s) who did not have a high profile. An accountant who is very bright and dynamic with a terrific track record, very tough—not dissimilar to you and Jack [Welch] and maybe tougher!’ In the end, however, ‘he was totally uninterested in joining GPA who he regarded as a bunch of softies.’ Michael O’Leary was destined for Tony’s second business, not his first.
A few days before the IPO, all the indicators seemed grim. Several of the biggest institutional investors that would normally be expected to buy in such a mega-flotation had indicated that on this occasion they would pass. Staggeringly, one of these was Schroder Investment Management, whose corporate finance arm was sponsoring the share issue in London. One leading investment manager was quoted as saying, ‘I’m sure GPA is a fine company, but we will not touch this one with a hundred-foot barge-pole.’ That was a judgement reflected in the business pages of the newspapers. ‘Private investors beware,’ summed up the Daily Mail. ‘GPA’s much vaunted growth shows only sluggish advances in recent years, and there are many potential sellers of the shares a year or so hence. Avoid.’
To compound matters, the beginning of the week in which GPA went public saw the global markets hit by turbulence, with sharp falls in the price of stocks. Tokyo’s Nikkei index went into free-fall and would lose about 8 per cent of market capitalisation in the week. That had a knock-on effect in London and New York, which both saw markets fall. Moreover, in another stroke of bad luck, the last days before the GPA flotation heralded news of another price war among airlines in the United S
tates. With three airlines having already issued predatory pricing suits against American Airlines and Delta Air Lines, it was no wonder that analysts were forecasting more difficult days ahead for the industry.
The most devastating news of all came from New York, where Wall Street investors passed on buying the stock. ‘With only two days to go before the launch,’ Tony testified afterwards, ‘the American underwriters astonished [me] by cautioning less than satisfactory support in the United States.’ In the event, ‘despite a campaign which they deemed to have been an unqualified success,’ the American firms had ‘failed to bring in any American institutional support for the IPO.’
At a meeting at Nomura’s offices on Tuesday 16 June, GPA’s advisers from Nomura, Schroders and Goldman Sachs gave Tony the bad news that the issue had closed at 6 p.m. heavily undersubscribed, with little hope of generating additional demand for the shares. ‘I don’t fucking accept that,’ Tony roared back at them. ‘Get out there and fix it!’
Over the next thirty-six hours sales personnel from all three banks began frantic phone calls to investors in whichever markets happened to be open. GPA had intended to issue 85 million shares, but Tony was prepared to accept 60 million. The subscription had closed at only 49 million, so there was now a scramble to find another 11 million. Attempts were made to track down the financier Sir James Goldsmith. Calls were put in to potential investors in the Middle East and Far East. Short-term deals were put on the table for consideration. Most humiliatingly of all, GPA’s advisers went back to Hanson PLC, which had sold its 2 per cent share in GPA in March—a decision interpreted by the markets as bailing out on the company. In desperation, Nomura now pleaded with Hanson to come in on a conditional underwriting deal, with the flotation restructured and sold at a lower price than the $10 per share that had previously been indicated as the bottom line. Hanson considered the deal for several hours before declining. ‘We were trying to breathe life back into a corpse,’ one senior adviser reflected.
When the bankers reconvened on the evening of Wednesday 17 June, they all told the same story: no-one was buying. There had been some brief hope that Fidelity, the vast American fund manager, might invest, but this had come to nothing. Most enquiries had been met with more colloquially expressed versions of ‘No chance’. Even more dispiritingly, a number of investors had performed 180° turns and walked away from verbal commitments. Goldman Sachs had barely managed to secure a single institutional investor. That astonished even the other bankers. ‘I find it staggering,’ an adviser noted. ‘It defies credibility. One has to ask, “Were they trying?”’
In the early hours of Thursday 18 June 1992, confronted with a total rout, the representatives of the three banks took the decision that the GPA flotation had to be aborted. The failure would cost them $20 million in fees. John Howland-Jackson of Nomura was given the unenviable task of walking down the corridor to the boardroom where Tony was waiting. ‘I’m afraid we all hid behind Howland-Jackson,’ says one of his colleagues. ‘We sent him off all by himself to give the bad news.’ The consolation, they reflected, was that the lead co-ordinator was a big man, so ‘at least if it came to blows’ he could defend himself.
At first Tony refused to take the advice. ‘Wait for Tokyo,’ he instructed. An hour later, by which time it was clear that the Japanese market had failed to ignite, he was forced to admit defeat. In the end Tony did so quietly and without rage. ‘He probably thinks we’re all rogues,’ one financial adviser admitted.
Alone and uncharacteristically dishevelled after thirty-six hours without sleep, Tony finally left the Nomura Bank building about five in the morning, returning to Dukes Hotel in St James’s. There he showered and changed, readying himself for the personal humiliation of announcing to the world that the GPA flotation was dead. What was going through his head as he walked the short distance from the hotel to GPA’s offices in Pall Mall is anybody’s guess. His reputation was in shreds. The IPO was a complete flop. There would be no personal share worth a quarter of a billion dollars. The cheque for $36.8 million to convert his A shares would not get written. Everything Tony had ever worked for had turned to ash in his mouth. Enemies and fair-weather friends would abound. After all, as one of Tony’s GPA minions spitefully recorded, ‘We can all spell “schadenfreude” now.’
Chapter 11
PROJECT REBOUND
The impact of GPA’s failure to launch on 18 June 1992 was immediate and dramatic: both Tony and the company he founded now faced total ruin. Within hours the value of GPA crashed by more than 20 per cent. The next day even shares offered privately in Dublin at the equivalent of $8 per share attracted no interest. ‘Anyone dealing today would need their head examining,’ one broker advised.
That notional share price suggested a value for GPA of $1.8 billion, compared with a pre-IPO valuation of between $2.86 billion and $3.58 billion. Few believed that the now-toxic company was worth any of these figures. Instead the immediate focus was on whether the failure to raise new finance would force GPA to reschedule payments on the $11.9 billion worth of aircraft it had on order. Of those 331 aircraft, two-thirds were due to be delivered within three years. Stage payments of $2.9 billion had to be made within the current financial year. The credit ratings agencies Moody’s and Standard and Poor’s had indicated that GPA’s rating was about to be reduced by two notches, making it more expensive for the company to borrow money. The whole situation was a gigantic mess.
There would be many complicated and long-winded analyses of why the GPA flotation had failed, but in the end the reasons were simple. GPA was seriously over-leveraged, with too many obligations to buyers at a time when the market was going through a severe downturn. Tony had needed to take GPA public to pay down the debt and bring in new equity for growing the company. Because the market had declined, he couldn’t get the share price he wanted, so he had refused to take a deal in the days leading up to the flotation.
In human terms it is easy to understand why, with an expectation that one share was worth $10 (which was already lower than was hoped for), it would be hard to accept $7. What Tony didn’t foresee, however, was that taking the lower value—indeed almost any value—was his only chance to avoid turning that value into nil. He seems not to have been well advised by his financial team, but in the end the call had been his. Had Tony raised the equity at a lower price he would almost certainly have ended up a billionaire. Instead he now stood to lose everything.
For many, Tony’s reversal of fortune was a cause for celebration. The failure of the IPO, noted the Sunday Independent’s editorial, had been accompanied by ‘more sniggers than tears’. After all, ‘the inevitably noisy consequence’ of being so ‘phenomenally aggressive’ was that Tony was not well loved. Under his leadership GPA ‘didn’t mind using its weight, it did not hesitate to shout and scream as long as it got its way.’ Such an approach, the newspaper suggested, ‘accumulates enemies’.
While many were happy to see Tony fail, there were others who stepped forward to help. Notable among these was the financier Dermot Desmond, who, only days after the IPO failure, wrote to Tony not just to express sympathy but also to give hard-headed advice. The sympathy was quick and to the point. ‘None of us are masters of timing,’ he wrote, ‘other than commentators who have clairvoyance of hindsight.’ His advice was simple. ‘You should give very serious consideration to listing GPA shares now in New York and London/Dublin,’ he urged. ‘You should not seek to raise any money or to sell any shares—simply go for a listing.’ All the documents were in place. Even though the initial price would be low, it would allow GPA to see future performance. ‘Without the listing, nervousness will continue, even if performance is achieved,’ Desmond warned. ‘In the absence of a listing, the only long term exit for staff and shareholders would be the takeover of GPA by some large international group.’ It turned out to be a shrewd warning.
Desmond’s analysis was based on the assumption of ‘normal performance over the next two years’. What he co
uld not have known was just how parlous the financial situation at GPA now was. In July, Maurice Foley, as chief executive, attempted to reassure shareholders that ‘our liquidity position remains good’ and that ‘resources are adequate to meet our projected commitments.’ The upbeat assessment was part of the ‘different storyline for investors’ that had been discussed at a meeting in GPA for drawing up an action plan. That meeting had noted the ‘loss of confidence in the company since the IPO deferral.’ Particularly dangerous were the ‘signs of uncertainty’ being demonstrated by the company’s creditors. If GPA was to have any hope at all of reducing the financial risk in its order books it would at the very least have to re-examine contracted financial commitments to aircraft manufacturers.
That approach seemed like a disciplined retreat in order to regroup and begin rebuilding the company. In fact it hid a situation that was far worse than Tony could have imagined. That same month he was shocked when he learnt just how apocalyptic GPA’s future actually was.
‘Maurice Foley phoned me three days prior to his going on vacation,’ he wrote afterwards in a deposition, ‘to warn that the company might run out of cash within ten days.’
Tony was flabbergasted. It had always been one of his greatest weaknesses that he never paid much attention to the figures; he concentrated on the big ideas while leaving others to sweat the numbers. But it was a weakness that to a certain degree he recognised in himself. It was why he employed Michael O’Leary to look after his personal affairs, and why he had sent him into Ryanair to clear up after Eugene O’Neill. And it was why Maurice Foley, who had been a stickler for the small details as a non-executive director, had subsequently been brought into the company as Tony’s no. 2 and eventual successor as CEO. So to hear now that the company was only ten days from insolvency left Tony poleaxed (although Foley later vigorously disputed this recollection of events).
Tony Ryan Page 18
