Semi-states look good in shop window

THE announcement of tentative plans for a management buyout (MBO) at Aer Lingus throws a spotlight on other semi-state organisations where management teams may also be thinking bigger than simply delivering respectable dividends for the Exchequer.

Those at the semi-state helm have been slow to rule out taking their companies out of state hands and into the private sector. Many market observers, as well as trade unions, would not be surprised at the existence of a hidden agenda in the boardrooms of the ESB, Aer Rianta, Bord Gáis, VHI, and even less obvious candidates like Bord na Móna. The government, however, plays down speculation that any of its semi-state jewels or headaches may soon be in the shop window.

ESB chairman Tadhg O’Donoghue was non-committal about the group’s plans after it announced profits of €354 million in May. “We looked at this issue four years ago and concluded at the time we were not ready. However, you must also bear in mind that the minister and government have said they do not envisage the network going out of state control,” he said.

Based on the market’s valuation of Northern Ireland power generator Viridian, the ESB’s value would be in the region of €5 billion. The recent appointment of new finance director Bernard Byrne - behind an unsuccessful attempt to lead an MBO at household products group IWP - did nothing to convince observers that the ESB would remain a semi-state forever.

The traditional image of semi-states as sleepy set-ups providing cosy jobs for political appointees would be unlikely to attract ambitious executives from the private sector like Mr Byrne. The government’s intervention to block a €1bn ESB venture in Poland in 2001 suggested the private sector go-getters and the politicians held differing views.

But union unrest in the form of a forthcoming strike may take the ESB off the list for the time being. The government would also wish to avoid the criticism it received for selling Eircom and then being forced to watch from the sidelines as its new bosses held off on investing in the country’s communications network. Similar under-investment in the power lines and generating stations on would be a political nightmare.

Airport operator Aer Rianta may, like its business, avoid emulating Aer Lingus management’s lofty ambitions and keep privatisation plans firmly on the ground. Its pre-tax profits of €21m (less than half of the previous year) could see it valued at more than €300m, when rated on a similar basis to publicly-quoted British airport operator BAA. But the controversy generated by Transport Minister Seamus Brennan’s attempts to do little more than give Dublin, Cork and Shannon airports different headed notepaper, and the unions’ resistance, are likely to have cooled any privatisation hopes for the foreseeable future.

Gas supplier Bord Gáis is similar to the ESB: both own an energy network needing substantial ongoing investment. Strong profits of €103m last year could see it valued at more than €1bn, but it is not considered to be at the front of the queue of companies seeking to leave State hands.

Over at VHI, while the privatisation sums add up and the former monopolist’s profits remain healthy after a series of hefty price increases, the health insurer faces an obstacle stock markets baulk at - uncertainty over future regulation. Putting a fair value on the company is made more difficult by the prospect of a legal battle involving rival insurer BUPA. A dispute over risk equalisation, a mechanism to prevent insurers from charging older people higher premiums, puts a €30m question mark over VHI’s future annual revenues and would force a potential buyer to take a gamble on a court or government policy decision. Annual profits of €34m mean a sale could raise hundreds of millions - but only from a buyer with steel nerves and a strong opinion.

Bord na Móna says its ownership is a matter for the government but it has almost wiped out its debt burden, reducing it from €31m to €8m last year; enhancing its attractions as a private sector business. Top executives have submitted a strategic plan to the government which is understood to have been upbeat on attracting outside investment. Moves away from the core peat business to interests in waste management and wind energy suggest the management team has ambition. A chequebook to match could soon see a once unglamorous business generate a €200m windfall for the State.