Battle for SWS to be decided by Christmas

THE fate of South Western Services (SWS) will be known before Christmas. The sale process will be handled by Merrion Capital and all sides are committed to the sale this time.

Following One51 pulling out of talks last year to buy parts of the business, the decision to sell it on was a unanimous vote of all parties, including the four West Cork co-operatives and Reox, formed last year as a trading company independent of Dairygold.

SWS has a €100 million indicative offer from Ion Equity already on the table. Ion understood it had the bid sewn up, but the board put the business on the open market last week.

Ion was previously involved in buying up Statoil’s and Shell’s retail Irish operations, through Topaz, a company it formed with other investors.

Topaz has already started to sell off some of the businesses acquired during that process. If they succeed in the SWS bid, it is thought likely that, as an equity house, it would sell on parts of the business.

As the last bid from Philip Lynch unfolded, it looked pretty certain, notwithstanding the internal politics of the organisation, that Lynch’s new company, One51, would end up buying the wind and waste management parts of the SWS businesses. But the former boss of IAWS Group plc was frustrated by the internal politics.

That involved a distrust of Dairygold by some, if not all, of the West Cork cooperatives and a management that had its own agenda and a 40% stake in the profits of the group to protect.

Frustrated at every turn Lynch finally never put a formal bid on the table. He had indicated a price of €62m involving €42m up front and a further €22m over three years, based on performance.

At the time, the newly formed One51’s key asset was its 26% stake in NTR plc which is currently yielding a profit on the investment of close to €300m.

In the current process it is understood that just Ion has put a price tag on the company, and One51 is a definite to table a formal bid.

After that other potential bids include Newcourt which would have an interest in the group’s extensive business processing. Newcourt is small with a bias towards the security market, but has been expanding. But a bid of over €100m would almost equal the group’s market capitalisation.

Another potential bidder, and close to the SWS Group, is the Fleming Construction group in Bandon, with close links to the group and to the outgoing chief executive, Kieran Calnan.

Fleming is involved in Hungary with SWS and it was joined recently by one of the group’s top executives, John Galvin, who could well be a prospective chief executive.

In terms of potential buyers that covers most of the likely candidates.

But there is one intriguing prospect that could unfold as this saga, running on and off for the past 18 months draws to a close.

If the bids for the group do not find favour with the board, Reox, which was formerly part of Dairygold, could still turn out to be the ace in the pack.

It, after all, controls 44% of the shares in the company and has three of the eight board members. In that context it seems only logical that Reox, which is hoping to make it big as a publicly quoted company, could significantly enhance its status if it took control of SWS.

However, Reox has major funding demands going forward if it is to expand its key consumer, retail and property divisions.

Over the next three years, investments of up to €800m would be required to achieve Jerry Henchy’s ambition for Reox and SWS could be a bridge too far. Given the shenanigans that have gone before, however, it would be a mistake at this stage to rule out some further surprise before the fate of SWS is finally resolved.