Barry O'Callaghan - Career in Education - Chairman of EMPG

Chairman of EMPG

In August 2009, the Irish Independent 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, 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, Sean FitzPatrick, 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 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., and one director from each of Apollo Management, BlackRock, Guggenheim Partners, Fidelity Investments, 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 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.