BEST FOOT FORWARD
In the first year of the new century sales of Waterford Wedgwood products climbed and O’Reilly watched proudly as the group was set to exceed the €1 billion sales mark for the first time, seemingly building on the publicity garnered from the Times Square exposure. Under O’Reilly’s direction, the company was now more focused on marketing, using the cachet of celebrities and well-known designers to push the brands and expand the range, and thereby increase consumer spending in its major markets.
To this end, in 2000, O’Reilly unveiled Sarah Ferguson, Duchess of York, as the new face of Wedgwood. She was paid €800,000 per year for two years to be a brand ambassador, which entailed appearing at up to 50 stores each year, where she would show customers how to lay tables with Wedgwood products. She also appeared at O’Reilly’s side at a number of functions. She was, as O’Reilly claimed, a useful marketing tool in the USA, where the British Royal Family held a fascination for many people; O’Reilly also greatly enjoyed her vivacious company. She was already a well-paid advocate for WeightWatchers, although her income from this latest endorsement was apparently less than half what she was paid by the American firm. Personal appreciation for the personal help she had received from O’Reilly persuaded her to take the still very well-paid gig. She said she had been ‘racked with fears, doubts, inadequacies,’ when O’Reilly offered her the original WeightWatchers role. ‘His outstretched hand of friendship came at a pivotal point in my life; he returned me to the land of the living and thus gave my children their Mummy back … without that job and that friendship I dare not think what might have become of me,’ she wrote in her autobiography.
Alongside its brand ambassador, the company also continued to select top designers from other fields to lend their skills to Waterford Wedgwood products. Jasper Conran, Paul Costelloe and Nick Munro were among the star names they attracted. An expanded range of luxury branded products was launched in 2000: now there were Waterford Crystal writing instruments and holiday heirlooms, and Wedgwood gourmet foods, linens and cutlery. There were even Wedgwood ceramic dog-bowls at $90 each. The singer Elton John was so impressed that he bought a dozen of them, specially inscribed, for his pets.
Better still, given that sales growth was not always matched by profitability, the company was heading towards record profits of €85 million for 2000. The share price rose accordingly and shareholders received generous dividends. The All-Clad acquisition was pulling its weight and proving highly profitable. O’Reilly claimed that ‘the company’s strategy of new product innovation and design would continue to keep it relevant to twenty-first-century tastes’. He boasted that ‘our momentum continues to build’ and that ‘we have exceeded our original expectations’. What he didn’t highlight was the extremely small profit margins being earned by the Wedgwood division: profits of just €15 million on sales of nearly €400 million, even after the closure of six manufacturing plants and 2,000 job redundancies. The previous big acquisition, the German glassware manufacturer Rosenthal, was not living up to expectations either, but O’Reilly argued that the key to acquisitions was patience. He promised that Rosenthal would deliver significant profits within three years.
O’Reilly wanted Waterford Wedgwood to get much bigger, much more quickly and felt that organic, or internal, growth would not deliver sufficiently. O’Reilly’s executives spoke about paying €100–€200 million for acquisitions, but O’Reilly mused publicly about going as high as €500 million. He chased expansion into leather goods and high-end watches as against what he described as the more ‘ephemeral’ fashion-driven areas of the luxury goods market. His ambitions were big: he had in his sights Coach, the leather goods company that made handbags, gloves, outerwear and scarves, and the watchmaker Jaeger-LeCoultre. Both companies could cost over $900 million each to acquire, but he seemed relatively unconcerned by the figures involved.
When he had hosted the Waterford Wedgwood AGM in May 2000 at the crystal manufacturing facility in Kilbarry – and hired the ‘Tralee Dome’ used for the Rose of Tralee festival to accommodate over 1,000 shareholders and workers – he had dismissed concerns raised about the level of borrowing. Debt:equity ratios, as a measure of risk and control, ‘went out the window five years ago,’ he said dismissively.
‘My long-term ambition for Waterford Wedgwood is to make it a luxury goods company that represents the best of the best in the world. It has just got to make two or three really important takeovers,’ he said, during our interview in Deauville. He was in something of a corporate Catch-22 situation, however. Waterford Wedgwood was already highly borrowed – at around €311 million at the end of 1999 and rising – and to make a sizeable acquisition would need money raised by selling shares. The company’s share price was still on a multiple of about half to a third of other stock market quoted luxury goods companies. This would mean selling more shares than might otherwise be the case to raise money, thereby diluting O’Reilly’s shareholding unless he stumped up a big portion of the new cash.
‘My job with Waterford Wedgwood is to build up a lifestyle company that originates in Ireland but does not necessarily produce in Ireland,’ he said. ‘That makes a profit for shareholders and conveys to the world at large a notion of excellence. I feel the same sense of pride in my newspapers.’
His departure from Heinz meant he could now focus more intently on Waterford Wedgwood and on his newspapers. Independent News & Media was designated as his new full-time occupation, with the full salary and benefits to match, even if he would not be devoting all of his time to it because of other commitments. His trusted lieutenant, Liam Healy, CEO for the previous 10 years, had stepped down to a part-time role. His son Cameron, long regarded as heir apparent at INM, had surprised many the previous year by quitting as boss of the Australian newspaper operations. His brother Gavin became COO, reporting to his father as executive chairman. Neither O’Reilly nor his departing son would publicly admit to tension between them, especially as Cameron was staying on the INM board in a part-time capacity, but there was plenty of angst involved, hidden from public view despite much speculation within the company and in media commentaries.
Cameron’s departure added another layer to what was already an often difficult relationship between father and son. As the eldest child, he had not been afraid to confront his father about family issues, often taking his mother’s side, or to strike out to do his own thing. Although brought up in Pittsburgh from the age of five, he finished his schooling in Ireland, at Clongowes Wood boarding school in County Kildare, and then progressed to Oxford University to undertake a degree, finishing in 1986. He had travelled extensively, including a motor-cycle trip across China, and quit a job in Goldman Sachs in 1987 after the stock market crash in order to set up his own trading business in Brussels. His father persuaded him to visit Australia in 1988 and, to his surprise, he had enjoyed both working in the newly acquired Australian Provincial Newspapers (APN) and living in the country. He stayed, and after a couple of enjoyable bachelor years he met Isla, who he quickly married and with whom he would have four children. Cameron was not without ambition in business or the smarts to achieve. He won the respect of those with whom he worked at APN: while he may have received his initial leg-up by reason of lineage, he more than did the work required and in a way that greatly impressed his colleagues.
He spent more than a decade with the APN subsidiary and as CEO gained the experience required in running a publicly quoted company with the disciplines required. He knew that Healy, who was 71 years old, wanted to retire, and he saw few other obvious contenders within INM. He did not feel entitled to the job but considered himself to have the experience of being the CEO of a PLC and success at doing it, something that, for example, his younger brother Gavin didn’t have at that stage. That experience and success would be a useful retaliation to charges of nepotism.
Cameron was at an age when he felt he could take responsibility, the same age his father had been when he brought the family to the USA and the new life at Heinz. His children were young and he felt it was a good time for them to move for education, before they hit their teenage years. He and Isla wanted to go to Europe and Cameron decided that it would as be CEO of INM in succession to Healy. If that didn’t happen, he would leave the group.
O’Reilly demurred, but not until after a lengthy to-and-froing, much of it via e-mail and hand-written letters. O’Reilly argued that the elevation had come too soon for Cameron but, in reality, the move had come too soon for the father. Cameron was far less deferential and would, as CEO, expect to be given his head, without having to refer constantly to his father for approval. O’Reilly was not ready to cede control. Cameron, along with everybody else, had missed the possibility of O’Reilly, after over 25 years as part-time chairman, assuming the position on a full-time basis while doing away with the role of CEO entirely. While Cameron was disappointed by this outcome he was not bitter and, importantly, did not fall out with his brothers, even though they tried to talk him out of leaving, shocked by his decision. His father described it as ‘the worst decision in the history of capitalism’, but it was not going to bring about a break in their relationship as long as the fracture was presented to the public in a way suitable to O’Reilly.
Many executives at INM were disappointed; while they liked Gavin and knew that they would get on with him, he had not shown the leadership qualities that Cameron had already displayed, something that would become a recurring topic of private conversations in the years to come.
The stock market reacted positively to the announcement in January 2000, jumping the share price by just shy of €1 to €7.30. Investors speculated that a more engaged O’Reilly would be more demanding of managers to deliver bigger profits and eager to buy more assets to build a business that already published 15 million newspapers and magazines each week. The expectation was that his focus would be commercial rather than editorial. His emphasis on building brands was clear from that year’s annual report, in which he stated that ‘we are attempting – and I hope succeeding – in focusing world-class resources on making our products more appealing and relevant everywhere’. More contentious was his claim regarding the maintenance of editorial standards. He wrote that ‘we attempt to underline the impartial, to entertain and to inform, to expose corruption and praise achievement. Mostly we get it right; occasionally we get it wrong; but at all times we endeavour to be fair, reasonable and independent’. Some disagreed bitterly, both in political and business circles, and most especially in Ireland. Within his own stable of publications, mutterings were heard as to its success in that regard.
O’Reilly had relented finally, in 1999, to the long-standing complaints by his managers in Ireland about the poor printing facilities, and the advertising revenue that was being lost as a result. He authorised investment in a colour press at a green-field location in Dublin. In late 2000 the first copies of the Irish Independent rolled off the presses at the new €65 million printing plant at City West, on the road south out of Dublin that led towards Castlemartin. In his new role as COO, Gavin was charged with the task of extracting cost-savings to pay for the investment.
It hadn’t gone unnoticed within the group, or elsewhere, that O’Reilly had spent far more on an acquisition north of the border. He spoke with pride about the acquisition of the Belfast Telegraph, although even then many described the €478 million purchase price as jaw-dropping and it brought INM’s debts to well over €1 billion. ‘It is our best deal yet,’ O’Reilly said.
The Belfast Telegraph was owned by Trinity, which had merged with MGN, which in turn owned the Belfast Newsletter. The British monopolies and competition authorities had demanded that the newly merged entity sell some assets to avoid an excessive concentration of titles within the one entity. O’Reilly prevailed in a competition to buy the Belfast Telegraph, but in doing so had to assure the authorities on both sides of the border that the Belfast Telegraph would be part of INM’s UK-managed operations. He emphasised the importance of maintaining editorial independence, given the newspaper’s tradition of largely serving the unionist majority. The cost of the deal horrified many of his executives and although it was not disclosed publicly at the time, his three sons felt it was necessary to argue with him about it, to lobby that he not proceed with it. They were ignored. ‘It was his company and he saw ownership of the Belfast Telegraph at that time of the peace process as his contribution to nation-building,’ said Tony jnr in 2015.
O’Reilly was aware of the potential threat posed by ever greater Internet usage to newspapers, even though circulation figures in general were increasing in an apparently booming global economy. ‘Papers will have to market themselves much more vigorously,’ he told me. ‘Papers today, compared to 10 and 15 years ago, are fantastically vivid things. Papers offer great value. The cost of a mobile phone call is the cost of a newspaper. I believe newspapers have a great future. In Dublin we have moved seriously to protect our market share and we are investing heavily in a new printing press to do that.’
His belief was that other forms of media were more vulnerable than newspapers and that ‘television will suffer because of fragmentation and because the Internet is made of an audio-visual medium. If you have been staring at a screen all day at work, you’re not going to want to go home and stare at the Internet when it is part of a television experience. I think we have covered virtually all of the possible avenues in which the Internet will come at us, given that you have only two eyeballs, two ears and 24 hours.’
‘We are in Internet defensively,’ he said, giving the example of I-touch, a company that provided a limited amount of real-time information to mobile phone subscribers, and in which INM was a majority shareholder. ‘I-touch is a chance to get a brand on the mobile phone. I believe in the future of mobile phones, but I don’t know how their future will evolve. I can’t believe it will be attractive for using the Internet apart from the provision of a few repetitive functions because of the size of the screen.’
He distrusted the high market valuation of an unproven company such as I-touch, particularly by comparison with an ‘old’ established company such as Heinz, suggesting that the latter was of the kind that would get an upward re-rating on the stock market when what he saw as an ‘Internet bubble’ burst. Investors, he felt, would return to focusing on traditional valuation measures, such as sales, pre-tax profits and earnings per share instead of others that justified enormous share prices based on a multiple of hope.
The irony was that one of the big criticisms of O’Reilly prior to this had been of his similar promotion of Atlantic Resources, a stock that had traded on hope and hype. He described Providence and Arcon, the two exploration and resources companies that he had brought into the twenty-first century, as ‘the butt ends of Atlantic Resources’, but was keen to talk them up. ‘I think we deserve the most incredible praise for what we have done with those companies. I am not embarrassed to blow my own trumpet on this because of all the things we stuck with, we stuck with Atlantic Resources. I must have invested $60 million in them.’
Later that year O’Reilly was to make appointments at Waterford Wedgwood that would copper-fasten family control of the business. Peter Goulandris had become executive chairman of the entire Wedgwood subsidiary in February 2000. If that was something of a surprise to CEO Brian Patterson, who now reported to Goulandris before he got to O’Reilly, he had another coming in November. Tony jnr left his full-time position at Arcon to become deputy CEO at the Wedgwood division.
Redmond O’Donoghue confronted suggestions of nepotism head-on. ‘You always get those allegations, but these guys are bright too and he’s got a lot of achievement behind him. I very much welcome this … Tony O’Reilly jnr knows our business. I think he’s the right age with a lot of achievements and a can-do attitude. We have to appeal to people under the age of 25 and 30 and I think he’ll play a large role there.’ Tony jnr would continue as part-time chairman of Arcon. Whatever about the extra work the son would take on, yet more would be added to his father’s agenda at the end of the year.