Yet more members of the Irish Stock Exchange are likely to be taken private in the short term, writes Leo Casey

Despite an uncertain economic climate, a continued slide in international stock markets and the emergence of several high profile accounting and corporate governance scandals, 2002 was a year of thriving corporate activity in the Irish market.

Ironically, in sharp contrast to the raft of technology initial public offerings that marked out the late 1990s as exceptional years for corporate activity, 2002 has been the busiest year ever for Irish firms leaving the stock market.

The property sector is close to vanishing from the ISE now that the battle to take Dunloe Ewart private has entered its final stages and following the €1 billion take-private of Green Property during the summer. The nascent tech sector may experience a similar fate given that there are three "live" public-to-private transactions in that sector, namely Riverdeep, Alphyra and Conduit.

But the landmark deal of the year was unquestionably the €3.8 billion leveraged buyout of the paper and packaging giant Jefferson Smurfit led by Madison Dearborn Partners, the Chicago-based private equity house.

This precedent-setting deal was the biggest ever involving an Irish firm, surpassing even recent deals such as the €3.6 billion acquisition of Eircell by Vodafone and the €3 billion buyout of Eircom in 2001. The Smurfit deal was also a highly complex and sophisticated transaction for a variety of reasons.

First, it did not simply involve a straightforward cash offer for Smurfit shares. It also incorporated the spin-off to shareholders of Smurfit's equity interest in Smurfit-Stone Container Corporation, the US-based paper and packaging conglomerate, in exchange for the cancellation of a portion of Smurfit's share capital.

Consequently, in addition to the need to secure at least 80 per cent acceptances from shareholders, a successful deal was contingent on shareholder approval at an e.g.m. and a High Court order to give effect to the spin-off. All of this resulted in a condensed and highly complicated deal timetable.

Second, from a regulatory perspective, as well as being subject to the Irish and British takeover rules, due to the size of Smurfit's US shareholder base, the transaction also fell within the ambit of the US tender offer rules. This multi-jurisdictional regulatory framework added an additional layer of complexity to the process given the inherent conflicts that exist between the US and Irish/British regulatory regimes. A small army of advisers from four investment banks and six law firms were involved in the deal.

Third, managing the public relations aspects of the deal was a continuous challenge given the high- profile media attention that the deal attracted, particularly in Ireland. This was to be expected since Smurfit was one of Ireland's oldest firms and longest-standing quoted stocks.

Finally, from a capital markets perspective, international stock markets fell heavily during the offer period. Many proposed takeovers have been de-railed by unstable equity markets in the past. Moreover, Smurfit was the target of heavy-merger arbitrage trading by hedge funds during the deal which made it difficult to manage the investor relations aspects of the transaction.

Despite these complexities, the transaction was executed smoothly and in good time. This was due in no small part to the success of an extensive institutional investor roadshow conducted by management on both sides of the Atlantic following the announcement of a recommended bid and also to the effort made to keep retail shareholders informed in an open and transparent manner at each stage of the process.

A high level of acceptances (over 83 per cent) was secured by the first closing date and shareholder approval of the spin-off was carried by a landslide majority at an e.g.m. in August. Madison Dearborn declared the transaction unconditional on September 3rd, about 4½ months after the initial approach was announced.

In conclusion, a word on the implications of the deal for corporate activity in Ireland. Its scale has clearly demonstrated that public-to-private transactions are not only the domain of small-cap, illiquid stocks. It is a reasonable bet that other high profile departures from the ISE will take place in the short term. All of this leaves a question mark hanging over the future of the Irish stock market. History has demonstrated time and again that the stock market operates in cycles and periods of retrenchment are always followed by phases of expansion. Roll on the next bull market.

Leo Casey is an associate director in IBI Corporate Finance. IBI advised Jefferson Smurfit on buyout led by Madison Dearborn.