Riverdeep chief to buy back stock

MOUNTING pressure on Riverdeep by some of its investors has sparked a buy-out attempt by chief executive Barry O’Callaghan.

News of the move, disclosed to the stock exchange yesterday, saw a strong rally in the share price which was up 84% or 63 cent on the day to 1.38.

With several factors driving the buy-out, Bank of Ireland Asset Managers, holders of 27% of the equity in the educational software company, will have a key role in determining the group’s future, it emerged yesterday.

Strong criticism of the group by US hedge fund Rocker Partners is believed to be a key factor driving Mr O’Callaghan’s efforts to buy back the company.

Rocker is a substantial $700m fund and it has been demanding answers from O’Callaghan about the state of the company which has made several takeovers in recent years.

Analysts and the fund managers have a long list of critical questions which they want Riverdeep to answer. In August the group produced its last set of results, but at the time it did not oblige analysts and investors with the usual conference call which made investors nervous.

Since August Riverdeep has seen its share price collapse until the fillip it got yesterday when news of the buy-out hit the market.

Earlier the shares hit a high of 5.8 and fell to a low of 75 cent when concerns surfaced about the level of accounting transparency within the group.

Riverdeep’s standing with international investors was also undermined after it purchased, for $57mn, a sister company in the US called Broderbund. Relations between the Riverdeep boss and investors are understood to have deteriorated further when he accused short sellers of the company’s shares of a whispering campaign.

Short sellers are those who sell shares they do not yet own in the belief they will fall in value prior to settlement date.

Apart from the recent $57mn purchase Riverdeep has carried out several deals in recent years. Marc Cohodes of Rocker Partners wants the company to spell out the basis of its accounting policies to clear up any doubts about the group’s finances.

Shares in the company slumped last week despite an announcement that revenues had doubled in the last quarter.

A report by Merrion Stockbrokers was also critical of the management's poor communication with financial markets.

According to the company's most recent annual report Barry O'Callaghan owns 5.5% of the company, and founder Pat McDonagh owns 23.1%.