"River Deep Mountain High," sang Tina Turner. It must be a song weighing heavily on the mind of Irishman Barry O'Callaghan, head of the publishing giant Houghton Mifflin Harcourt. Yesterday O'Callaghan declared that the company's investors are "under water", sunk by a mountain of debt. Quite a blow for the man who two years ago was labeled as Ireland's youngest billionaire by the Sunday Times thanks to the value put on his share of the publishing company.
In fact, O'Callaghan's company was originally called Riverdeep, but in 2006 he ditched the name when he bought a new name along with one of America's largest educational publishers, Boston-based Houghton Mifflin. He followed that highly leveraged acquisition with another, this time grabbing Orlando-based schoolbooks publisher Harcourt. The two deals combined left the company owing $6.7bn, which has now proved to be too great a weight.
O'Callaghan has always come across as the clever boy. He floated Riverdeep on the NASDAQ back in March 2000, just before the dot com bubble burst. Two years later he arranged for management (including himself) to buy it back after the share price tanked.
He spent a few years restructuring Riverdeep until the company was ready for the reverse takeover of Houghton Mifflin in 2006. In 2007 he moved the the company's corporate home from Ireland to the Cayman Islands, to take advantage of the Cayman Islands "greater flexibility" in distribution money to shareholders. He was able to raise hundreds of millions from investors, most of whom are Irish, who trusted in O'Callaghan and his vision for the educational publishing industry.
It was in April of 2008 that the Sunday Times ranked Barry O'Callaghan as the 7th richest man in Ireland. At the time O'Callaghan owned 47% of his new publishing group. A year later things had taken a turn for the worse. O'Callaghan dropped to 21st richest in Ireland and was no longer a billionaire. Moody's and Standard & Poor put health warnings on his company's debt as the credit crunch began to bite hard.
Yesterday's announcement wasn't surprising, but it probably sounded like a death knell to all those investors who trusted in O'Callaghan and have now lost their shirts. O'Callaghan says that he himself has lost more than anyone.
So, O'Callaghan is down, but not quite out. The company's not going out of business, but restructuring again. Those who are owed billions will be the new owners and, wait for it, and O'Callaghan will stay on at the helm.
The chief bond holder is hedge fund manager John Paulson and he led the push for this deal. Paulson says he has "great admiration" for O'Callaghan. So O'Callaghan lives to fight on - for now, although as a paid employee rather than as the owner/manager.
Update March 15, 2011: The Wall St Journal reports that O'Callaghan resigned today.