I propose to take Questions Nos. 17 and 25, together. I wish to make an important announcement in relation to the future of the B & I line. Before doing so, I would like to remind Deputies of the background to the State's involvement with the company. B & I were acquired from the private sector by the Government in 1965. The Government injected equity into the B & I line in 1971 and 1972, and in each year from 1976 to 1990 for working capital purposes. Pending a decision on the future of the company, it was decided not to inject additional equity in the current year. Instead, the Government have guaranteed short term borrowing of up to £8 million by the company in 1991.
The Exchequer has invested £106 million in the B & I Line since 1965. Of this amount, approximately £100 million has been invested since 1977 and £53 million since 1985. Despite an improved trading result this year, B & I are still making losses after interest charges. The company still require, therefore, substantial Exchequer financial subsidy to meet their ongoing commitments.
SKC Corporate Finance Ltd. were appointed by me last year to examine the future options for B & I with the main objective of determining how soon the company's dependence on Exchequer financial support could be ended. Having assessed the feasibility and financial implications of a number of options, the consultants came out strongly in favour of the sale of B & I as the best option.
The Government's decision to sell their shareholding was strongly influenced by the fact that they do not have the resources for the continued heavy investment in the company which the consultants highlighted and which all parties concerned agree is necessary for the continued survival and development of the company.
Following an extensive competitive tendering process carried out by my financial advisers, SKC Corporate Finance Ltd., a memorandum of agreement on the sale of the entire issued share capital of B & I was signed on behalf of the Minister for Finance and Irish Continental Group on 28 February 1991. A clause in the agreement provided that it would lapse if, for whatever reason, the sale was not completed by 16 August 1991.
Following the signing of the agreement, ICG had a comprehensive due diligence exercise carried out on B & I. This led to further complex and protracted negotiations with my advisers on a range of additional items in respect of which ICG had sought compensation.
ICG also entered into extensive negotiations with the B & I unions with a view to reaching a comprehensive agreement on rationalisation and work practices prior to completion of the sale. However, I regret to say that negotiations with the unions took much longer than was anticipated.
By 16 August 1991 a share purchase agreement had not been concluded and the necessary enabling legislation had not been enacted. Accordingly, the memorandum of agreement with ICG expired on 16 August 1991.
Further detailed discussions took place with ICG after 16 August. While progress was made, the expired memorandum of agreement was not replaced by any new legal agreement.
While discussions were continuing with ICG during September I received representations from the chairman of B & I acting on behalf of independent board directors to the effect that in their view the terms of the proposed sale to ICG did not represent good value. They recommended that, in view of the Government's intention to proceed with the sale of the company, the way should be opened once more to competitive bids. The chairman of the B & I board advised me that, given a decision to sell now at the best price available, their advice was that fair value is whatever is the best price that can be obtained in the market.
At the same time, my advisers became aware that a consortium of B & I management and staff, together with their Danish backers, were anxious to make a revised offer for the company. The management had previously made an unsuccessful bid. The B & I group of unions were not involved with the buy-out on that occasion and did not support the previous offer. However, following representations made to me by the management of B & I and the B & I group of unions, I agreed to allow them to attempt to prepare a proposal for the acquisition of the company.
Both Irish Continental Group and a consortium of B & I management and staff, together with their Danish backers, were invited on 25 October 1991 to submit fully comprehensive offers within a two week deadline ending on 8 November 1991. Following requests for an extension from the management/staff buy-out consortium, the deadline was extended first until 15 November and then for a further week until 22 November 1991.
As a result of the collision involving the m.v. Kilkenny, I agreed to give the MSBO consortium a further extension until 28 November. Offers were finally received on that date from both the consortium and Irish Continental Group. A further period was subsequently allowed for clarification of the offers.
I appointed an assessment committee comprising representatives of my Department, the Department of Finance and SKC Corporate Finance Ltd. to examine the two offers. Following detailed consideration of the offers, the assessment committee made a recommendation to me, which I accepted, that the sale should be concluded with Irish Continental Group subject to final agreement on all issues.
The matter was considered by the Government at their meeting yesterday afternoon. During the Government meeting my Department passed me correspondence they had received at 4.30 p.m. yesterday from the advisors to the MSBO consortium indicating, inter alia, that management and staff had withdrawn from the consortium bid involving Danish interests and wished to have an amended bid submitted on their behalf on terms substantially similar to the consortium bid. In other words, the management and staff were proposing to go ahead without their Danish backers, who were equal partners in the consortium and were the largest financial contributors to the proposal.
The terms of this revised offer were presented as being essentially the same as the original MSBO offer. However, only £2 million of the proposed £5 million purchase price offered could be paid immediately. The balance would be paid on a deferred basis to be agreed. In addition, discussions with suitable partners, including Irish Ferries, would take place after 12 months.
Having considered the overall position in the light of the report of the assessment committee, the Government decided that the sale of B & I to Irish Continental Group should take place subject to final agreement on all issues. In arriving at their decision, the Government noted the view of the assessment committee that the buy-out proposal had represented a welcome initiative in Irish industry, involving an equal partnership between management and staff.
The Government agreed with the committee's conclusion, however, that, in line with standard practice, B & I should be sold at the best price available, that was to Irish Continental Group, unless there were other compelling circumstances for not doing so.
I do not propose to discuss details of the two offers at this time because negotiations on all issues with Irish Continental Group have yet to be finalised. I can say, however, that the ICG bid of £8.5 million purchase is substantially better than the buy-out offer of £5 million with £3 million of that on a deferred basis. Both ICG and the buy-out consortium have sought an Exchequer investment of £35 million to remove the company's debt prior to the sale. Clearly, the sale to Irish Continental Group will result in a substantially lower cost to the Exchequer.
I am satisfied that the sale to Irish Continental Group represents the best prospect for the future of B & I. The company, as indeed were the MSBO consortium, are committed to investing £30 million in B & I over the next five years. It will create a strong shipping entity with substantial synergy benefits, a proven track record and the ability to make the necessary investment in the future of the combined entity.
There will be an opportunity for Deputies to debate this matter fully during the course of the B & I Line Bill, 1991, which has been circulated to Deputies today.