Barry O'Callaghan
Encyclopedia
Barry O'Callaghan is an Irish
Irish people
The Irish people are an ethnic group who originate in Ireland, an island in northwestern Europe. Ireland has been populated for around 9,000 years , with the Irish people's earliest ancestors recorded having legends of being descended from groups such as the Nemedians, Fomorians, Fir Bolg, Tuatha...

 businessman, Chairman and CEO of Houghton Mifflin Harcourt (HMH), and the Chairman of Education Media and Publishing Group
EMPG
Education Media and Publishing Group, more commonly known as EMPG, is a holding company registered in the Cayman Islands with no operating subsidiaries. It also has a minority interest in an affiliate that focuses on markets outside the USA called EMPGI...

 (EMPG), the Cayman Island holding company for Houghton Mifflin Harcourt.

He was the largest shareholder in EMPG
EMPG
Education Media and Publishing Group, more commonly known as EMPG, is a holding company registered in the Cayman Islands with no operating subsidiaries. It also has a minority interest in an affiliate that focuses on markets outside the USA called EMPGI...

 on its formation in 2007 with a controlling stake of circa 48%. O'Callaghan created Houghton Mifflin Harcourt, one of the largest educational publishers in the United States, by merging existing companies. Despite the rationale of the merger of Riverdeep, Houghton Mifflin and Harcourt to form HMH, the global financial crisis affected the company by first forcing a restructuring that led to a loss of value of Mr. O'Callaghan's shareholding in EMPG in late 2009, with his holding falling to approximately 22%. Then a further restructuring in early 2010, led to his stake and its value being reduced to 'almost zero'.

Despite the destruction of $3.5 billion of equity value at EMPG, the conversion of approximately 60% of the debt, over $4 billion, into equity, and massive personal debts of O'Callaghan, circa $400 million, he remains as CEO of Houghton Mifflin Harcourt, after the completion of the restructuring.

On 4 April 2010, The Times
The Times
The Times is a British daily national newspaper, first published in London in 1785 under the title The Daily Universal Register . The Times and its sister paper The Sunday Times are published by Times Newspapers Limited, a subsidiary since 1981 of News International...

described the lending practises at Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....

. The article quotes the new CEO, Mike Aynsley: "hubris played a very, very big part." In may deals, Anglo Irish Bank would lend to wealthy individuals to further their equity participation. In many cases, Anglo took personal guarantees as security. The article in the Times notes that Anglo Irish Bank has large exposures to entrepreneurs such as O’Callaghan.The bank’s security was limited and largely to his shares in EMPG.

Early and personal life

Barry O'Callaghan was born in Mitchelstown, County Cork
County Cork
County Cork is a county in Ireland. It is located in the South-West Region and is also part of the province of Munster. It is named after the city of Cork . Cork County Council is the local authority for the county...

, Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

 and educated at Clongowes, a Jesuit-run secondary boarding school. He was captain of the school's senior cup rugby team and later, he played rugby for Trinity College Dublin where he studied law in the late 1980s. O'Callaghan met his wife, Geraldine McGeough at Trinity College. They have three daughters.

According to a quote in the Irish Independent
Irish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...

O'Callaghan once described himself as

Career in finance

After graduating in Law, O'Callaghan went into investment banking, starting at Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....

 working in the London and Hong Kong offices. This was followed by a stint at Salomon Brothers in New York, now a part of Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...

.

In his last investment banking job, prior to moving to the education sector, he worked for CS First Boston, the investment banking arm of Credit Suisse. In this job he met Pat McDonagh, a serial entrepreneur, who founded CBT, now known as SkillSoft, Riverdeep
Riverdeep
Houghton Mifflin Harcourt Learning Technology originally started as Riverdeep Interactive Learning, is a publishing house for educational online and CD-ROM products based in San Francisco and Dublin, Ireland. Founded in 1995, Riverdeep was principally the creation of the Irish ex-investment banker...

, and Thirdforce, where Pat McDonagh is the current Chairman. Pat McDonagh hired O'Callaghan as the CEO of Riverdeep in 1999, ahead of its Initial Public Offering. At the time O'Callaghan was 31 years old.

CEO of Riverdeep

As CEO of Riverdeep
Riverdeep
Houghton Mifflin Harcourt Learning Technology originally started as Riverdeep Interactive Learning, is a publishing house for educational online and CD-ROM products based in San Francisco and Dublin, Ireland. Founded in 1995, Riverdeep was principally the creation of the Irish ex-investment banker...

, O'Callaghan prepared the company to raise money from the stock market. When he joined the company it had 20 employees and no revenues, according to an article by The Times. In March 2000 Riverdeep raised $150m on the Irish Stock Exchange and NASDAQ. At the time the company had $8 million in sales and was losing money. Riverdeep's stock price declined in the aftermath of the TMT stock market bubble. O'Callaghan took the company private in 2002. Following a re-financing of the capital structure in 2006, he became the majority shareholder with a 65% stake with an estimated value of $244m for his stake. This valuation is not adjusted for any debts relating to the stake.

Chairman of HM Riverdeep

In late 2006, Riverdeep announced that it was in discussions with the owner of Houghton Mifflin to merge with the company. The CEO of Houghton Mifflin, Tony Lucki, was a non-executive director of Riverdeep.

The transaction was completed in December 2006, with Tony Lucki remaining CEO and O'Callaghan assuming the role of Chairman. The new company was named Houghton Mifflin Riverdeep. The old Riverdeep became a division of the new company called Houghton Mifflin Learning Technology. At the time the equity of the combined company was valued at $2 billion, with O'Callaghan and other management owning just over 50% of the company. Again, this equity valuation did not reflect any debts related to the stake.

Some commentators raised concerns about the valuation including Luke Johnson who was the chairman of Channel 4 and Signature restaurants at the time. For example, in an article in the Daily Telegraph he wrote
O'Callaghan did not agree with criticism of the transaction stating that:

Chairman and CEO of Houghton Mifflin Harcourt

In July 2007, Houghton Mifflin Riverdeep agreed to acquire Florida based Harcourt from Reed Elsevier
Reed Elsevier
Reed Elsevier is a publisher and information provider operating in the science, medical, legal, risk and business sectors. It is listed on several of the world's major stock exchanges. It is a FTSE 100 and FT500 Global company...

. The merged company was renamed Houghton Mifflin Harcourt and was owned by a Cayman Island holding company called Education Media and Publishing Group. Tony Lucki remained CEO with O'Callaghan as Chairman. EMPG has to raise additional equity to fund the purchase with the equity value of company estimated to be $2.6bn after the transaction. O'Callaghan's stake was 38% following the transaction, implying a value of circa $1bn, though again this does not reflect any related debt - O'Callaghan is known to have borrowed considerable sums from his personal bankers to cover his equity stake.

In March 2008, the Irish Independent
Irish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...

 newspaper listed O'Callaghan as the 32nd richest person in Ireland with €360m of wealth in the annual "Richest 100" list. The difference between the €360m net worth and $1bn value of his stake in EMPG is driven by debt and currency. Based on a US dollar/Euro exchange rate of 1.58 at the end of March 2008, indicates a dollar net value of $575m for O'Callaghan at the time. With an equity value of $1 billion for his stake in EMPG, this implies that he had circa $400m of personal debt and liabilities at the time.

The Sunday Times rich list for Ireland, published in April 2009 reported similar figures for O'Callaghan to the Irish Independent's 2008 survey, estimating a €348m value for his investment in EMPG. His other investments were estimated to be worth £8m.

In April 2009 on the retirement of Tony Lucki, O'Callaghan became Chairman and CEO of Houghton Mifflin Harcourt.

Chairman of EMPG

In August 2009, the Irish Independent
Irish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...

reported that EMPG was in negotiations with its lenders to restructure the company. As a result of the transaction $1 bn of debt would convert into a 45% stake in EMPG with an implied equity value of $2.66 bn for both the old equity and the new shares combined. As a result of the dilution O'Callaghan's stake was diluted to 20.8% with an estimated value of $555 million, not accounting for related debts.

On 13 January 2010, EMPG announced that it was in advanced negotiations with its lenders about a comprehensive restructuring ,that could see a 70% reduction in its debt levels. Interviewed on Irish State broadcaster RTE
Raidió Teilifís Éireann
Raidió Teilifís Éireann is a semi-state company and the public service broadcaster of Ireland. It both produces programmes and broadcasts them on television, radio and the Internet. The radio service began on January 1, 1926, while regular television broadcasts began on December 31, 1961, making...

, O'Callaghan confirmed that he and Irish investors faced huge losses. He stated that "no-one has lost more than me".

In an interview with the Irish Times published on 15 January 2010, O'Callaghan blamed the troubles at EMPG on the global economic crisis which led to massive deficits at US states who chose to protect jobs rather than education materials. Revenues for 2009 were 25% below budget with the company's earnings collapsing to $500 m, less than half budget. Discussing the financial structure of Houghton Mifflin Harcourt, O'Callaghan admitted that "the sums didn't work out". Looking back at his deal making that created EMPG, O'Callaghan said, he didn't regret forming Houghton Mifflin Harcourt, but that
According to the Irish Independent, O'Callaghan and other shareholders are likely to see their investment in EMPG wiped out. The decline in value of O'Callaghan's EMPG stake to a near zero value does not take into account any related debt. The Irish Independent article notes that he is a large personal customer of Anglo Irish Bank. O'Callaghan admits to having multimillion loans from Anglo Irish Bank and other international banks. Refusing to confirm the level of his indebtedness, O'Callaghan claimed to still be solvent and stated that he expects to honour all his obligations.

In addition to facing personal losses, numerous Irish-based investors have also been affected. Clients of Davy Stockbrokers had invested $475 m in EMPG according to the Irish Times. Within this group are included the former Chairman of Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....

, Sean FitzPatrick
Sean FitzPatrick
Seán FitzPatrick was chairman of Anglo Irish Bank until he resigned in December 2008 amid mounting revelations over hidden loans...

, the head of Claret Capital Domhnall Slattery and Senator Feargal Quinn.

The Irish Independent article states that O'Callaghan may be forced to resign once the restructuring package is agreed. This is in contrast with his interview with the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....

where he insists that he will continue to run the business.

Although O'Callaghan and EMPG investors are expected to receive nothing for their equity stake, O'Callaghan admitted to the Irish Times that he hoped to gain in the future from a share option scheme at Houghton Mifflin Harcourt.

On 22 February 2010, Houghton Mifflin Harcourt announced that EMPG and HMH had reached an agreement to restructure the finances of the company. According to the Irish Times the investments by the current equity holders of EMPG, including the EMPG and HMH CEO, Barry O'Callaghan, will see their investment of over $3.5 billion written down to zero. The Financial Times reported no management changes are expects as part of the deal with both the CEO, Barry O'Callaghan and the CFO, Michael Muldowney expected to remain in their roles. A new nine-member board is to be created with the CEO the only executive representative, one independent, two representative of Paulson & Co.
Paulson & Co.
Paulson & Co. Inc. is a hedge fund sponsor owned by its employees and founded in 1994 by John Paulson.-Overview:Paulson & Co. Inc. is an employee-owned, hedge fund headquartered in New York, New York...

, and one director from each of Apollo Management
Apollo Management
Apollo Global Management, LLC is a private equity investment firm, founded in 1990 by former Drexel Burnham Lambert banker Leon Black. The firm specializes in leveraged buyout transactions and purchases of distressed securities involving corporate restructuring, special situations and industry...

, BlackRock
BlackRock
BlackRock, Inc. is an American multinational investment management corporation and the world's largest asset manager. BlackRock is headquartered in Manhattan, New York City, New York, United States and is the leading provider of investment, advisory, and risk management solutions...

, Guggenheim Partners
Guggenheim Partners
Guggenheim Partners, LLC is a privately held, diversified financial services firm that engages in investment banking, capital markets services, investment management, and investment advisory. The firm is headquartered in Chicago and New York with over 1,400 professionals located in 20 cities...

, Fidelity Investments
Fidelity Investments
FMR LLC or Fidelity Investments is an American multinational financial services corporation one of the largest mutual fund and financial services groups in the world. It was founded in 1946 and serves North American investors. Fidelity Ventures is its venture capital arm...

, and Avenue Capital.

On 10 March 2010, Houghton Mifflin Harcourt announced that it had completed its re-capitalization. In addition to a new investment of $650 million of equity, the debt levels of the company were reduced by approximately 60% and the annual interest payments by over 75%. According the Irish State Broadcaster RTE, the old equity investors based in Ireland have lost all their investment. The Irish Independent
Irish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...

 reported that the old shareholders were denied a shareholders' meeting to vote on or discuss the restructuring. The former shareholders have been left with warrants over 5% of the company, in the case its value recovers to previous levels.

Other interests

In addition to his positions at Houghton Mifflin Harcourt and EMPG, O'Callaghan has other investments, in particular in his native Cork with a stake in the Cliff House hotel, a 39 bedroom luxury hotel, in Ardmore, Co. Waterford, an investment in Cliff Town House a hotel/restaurant in St. Stephens Green in Dublin, and a holding in Cork radio station, Red FM.

On 15 January 2010, the Irish Independent reported that Valshan, the company that operates the Cliff House Hotel owed O'Callaghan €3.5m at the end of 2008, based on information reported to the Irish tax authorities. The report showed a drop in accumulated profits in 2008, which may indicate that Valshan lost money in 2008. The hotel is estimated to have cost €20m of investment. O'Callaghan is the sole shareholder in Valshan, whose registered office is at EMPG's office in Dublin. The director of Valshan, David McLoughlin is an employee of EMPG and the son of Kyran McLoughlin of Davy Stockbrokers.

Political links

In September 2008, Enterprise Ireland, a government agency agreed to pay a €30m subsidy to Houghton Mifflin Harcourt to guarantee that its research and development centre, the old Riverdeep
Riverdeep
Houghton Mifflin Harcourt Learning Technology originally started as Riverdeep Interactive Learning, is a publishing house for educational online and CD-ROM products based in San Francisco and Dublin, Ireland. Founded in 1995, Riverdeep was principally the creation of the Irish ex-investment banker...

 unit, would not just remain in Ireland but increase the size of its workforce. Fianna Fáil
Fianna Fáil
Fianna Fáil – The Republican Party , more commonly known as Fianna Fáil is a centrist political party in the Republic of Ireland, founded on 23 March 1926. Fianna Fáil's name is traditionally translated into English as Soldiers of Destiny, although a more accurate rendition would be Warriors of Fál...

's TD
Teachta Dála
A Teachta Dála , usually abbreviated as TD in English, is a member of Dáil Éireann, the lower house of the Oireachtas . It is the equivalent of terms such as "Member of Parliament" or "deputy" used in other states. The official translation of the term is "Deputy to the Dáil", though a more literal...

, Mary Coughlan, Tanaiste and Minister for Enterprise, praised the deal. At the time, Enterprise Ireland has a €650,000 investment limit to the amount it was allowed to devote to any project but this limit was ignored.

In late 2009, O'Callaghan was among a number of Irish business leaders invited by Irish Prime Minister, Brian Cowen
Brian Cowen
Brian Cowen is a former Irish politician who served as Taoiseach of Ireland from 7 May 2008 to 9 March 2011. He was head of a coalition government led by Fianna Fáil which until 23 January 2011 had the support of the Green Party and independent TDs.Cowen was also leader of Fianna Fáil from 7 May...

 to the government guest house, Farmleigh, to discuss ways to address the Irish Financial Crisis.
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