Media:The struggle to control IN&M is set to become a bitter war of attrition where little quarter will be given by either side, writes Arthur Beesley

Telecoms tycoon Denis O'Brien is likely next year to intensify his efforts to unsettle Sir Anthony O'Reilly and his grip on Independent News & Media (IN&M), the group he has dominated for more than 30 years.

Whether the hostilities culminate in a bidding war for the organisation remains to be seen. Still, the confrontation between the knight and his rival has already reached a level from which it would be difficult for either man to retreat with any pride. Abrasive as they have been, the skirmishes thus far seem like only the opening manoeuvres in a spectacular battle royale.

Flush with $800 million (€557 million) in proceeds from an adroit refinancing of his Caribbean mobile phone group Digicel, O'Brien spent hundreds of millions of euro building his position in IN&M. He zoomed up the share register, increasing his stake almost fivefold in an effort that brought his interest to 14.5 per cent from 3 per cent within months.

He is now the second-largest IN&M shareholder after Sir Anthony, who controls more than 26.5 per cent of its stock.

Not content with that, Mr O'Brien sent a blizzard of letters to the company in which he asked probing questions about O'Reilly's expenses and its governance generally. His central contention is that IN&M's board works more like that of a wholly-owned family firm than a publicly listed organisation in which O'Reilly owns little more than a quarter of the shares.

The company says that simply isn't true and that Mr O'Brien's governance concerns are entirely without foundation. Still, his questions put IN&M on the defensive. In response to a question about its use of a private jet, for example, the group said it insists that O'Reilly flies on the aircraft at all times "for security reasons".

There was more. Mr O'Brien commissioned and published a report which criticised the firm's governance. Its annual general meeting in Belfast was dominated by questions from Mr O'Brien's lieutenants. In a series of interviews in the international business media, Mr O'Brien alerted institutional shareholders to his doubts about the ownership of loss-making assets such as the London Independent and said O'Reilly should retire.

This was quite an affront for a man whose reputation for ruthless entrepreneurial verve is built on the doughty expansion of IN&M and its money-making prowess. Still chief executive at the age of 71 and still hungry for the business fray, his authority within the group has never been questioned in such strident terms. As a result, it is now increasingly likely that the latter career of this colossus of Irish business will be defined by the outcome of the battle with Mr O'Brien.

So what happens next? It can be assumed that IN&M has developed advanced defence strategies. But the group has still taken no overt action against its enemy besides attacking his credentials in media interviews, a tactic employed with gumption by Mr O'Brien himself.

At this point, it seems more than likely that the company will await Mr O'Brien's decisive move before taking action against him. He has still not declared his ultimate intentions for his IN&M investment, although he has characterised it as "strategic".

A cessation to his accumulation of shares would be the most benign outcome at the moment for the media conglomerate, in spite of the headaches he has already caused the group. But that must be considered unlikely, given the tenacity of Mr O'Brien's campaign to date. Having forked out millions of euro when IN&M shares were trading around €3.30 last February, why would he stop now with the share trading around €2.30?

While there are any number of endgame possibilities, close observers of the scene believe an alternative scenario to an outright bid is for Mr O'Brien to call an extraordinary general meeting (egm) to seek the removal of O'Reilly and the board.

Mr O'Brien targeted the board in recent criticism. In an interview last month, he said that "it's time for Tony to step aside, let somebody else lead the board". He also claimed the board was "too old" and that the directors "don't understand the internet age". Needless to say, IN&M disputes that strongly.

The size of Mr O'Brien's shareholding means he is already in a position to requisition an egm. However, he would be more likely to maximise his stake before going down that road in the face of O'Reilly's significant shareholding.

The largest stake he can hold before being obliged to mount a bid is 29.9 per cent. While that's some way from his existing shareholding, Mr O'Brien has an appetite for more stock and money to buy it.

If he did call an egm, the outcome would depend on his ability to convince other shareholders to support his resolutions against the directors and oppose those of IN&M. Short of mounting a bid and taking on the debt that would be required to execute a takeover, this would be a means of securing a place on the group's board and securing an element of control over the business without buying it outright.

It must be assumed, however, that the firm has considered the possibility of such an eventuality and developed a strategy to oppose it. After all, O'Reilly is not for walking away from the family heirloom.

While he is the biggest beneficiary of the group's dividend policy, that same policy pays out handsomely to other investors. If the thrust of Mr O'Brien's critique is that a better-run group would have more money to pay out in dividends, Sir Anthony might well seek to call in favours from long-standing shareholders

Then there is the possibility of an outright bid for the business from Mr O'Brien. While he has plenty of cash at his disposal, turmoil in the international credit market might make it more difficult to raise debt for such a deal. Still, the Digicel refinancing proved that he has no shortage of friends in the international investment banking community.

While the decline in IN&M's share price means it would be cheaper to mount a bid now than a year ago, he is still faced with the blocking stake held by O'Reilly. The size of his stake means he cannot be bought out compulsorily. Moreover, O'Reilly has been active in the market consolidating that position.

The same concerns about the debt market might play against O'Reilly raising funds to finance a privatisation attempt of his own.

In that context, the failure of the firm's private equity-backed bid to acquire Australian group APN was a clear setback. IN&M expected to realise some €375 million in cash from the deal - it owns 38.5 per cent of APN - and a return of cash to shareholders was on the cards. O'Reilly would have been the biggest beneficiary in that case, boosting the equity available to him for an attempt to take a controlling interest in IN&M.

Ultimately, the only certainty in this conflict is the guarantee of further conflict.

No matter when or how the battle escalates, it is sure to be a bloody encounter.