FL-Group’s purchase of Sterling has drawn considerable attention in Iceland.
On Sunday night, FL-Group CEO, and former executive chairman, Hannes Smárason, appeared in an interview on the TV current affairs program Kastljós (Spotlight) on the Icelandic National Broadcast Service, RÚV.
Under the headline “Denies having transfered money between accounts without permission” Morgunbladid published extensive excerpts from the interview on Monday.
Among other things, Smárason was asked if FL-Group had collaborated with Fons Investment during Fon’s original acquisition of Sterling in March of this year.
Q: “When [Fons Investment owner] Pálmi originally acquired Sterling, was this outcome [FL-Group’s acquisition of Sterling] considered as a possibility? Were you actively involved in that process?”
A: “No, absolutely not, absolutely not. We were not involved. We have just been monitoring closely developments in Scandinavia, we always monitor closely what is going on in the world of aviation, and we just observe and are on the lookout for opportunities wherever we can find them.”
Q: “Did FL-Group finance Fons’s acquisition of Sterling in any way?”
A: “No, absolutely not.”
Q: “But did you invest?”
A: “No, absolutely not.”
Q: “Did any companies you are involved with invest?”
A: “No, absolutely not.”
Q: “What about companies associated with FL-Group?”
A: “No, did not touch it.”
Q: “What about rumors that you transferred ISK 3 billion without permission from [FL-Group’s] accounts and deposited to accounts elsewhere unrelated to FL-Group? [Former FL-Group CEO] Ragnhildur is said to have objected to this when it happened?”
A: “That’s complete rubbish.”
A: “Complete rubbish.”
Smárason remarked that rumors did not constitute facts.
One of the two Spotlight journalists responded by saying that they had certain undisclosed sources that substantiated the rumors, to which Smárason replied they had better check their sources.
Morgunbladid concluded its coverage of the Spotlight interview by observing that the daily Bladid had reported on September 23 that according to undisclosed sources 6 out of 7 directors at FL-Group had resigned last summer in connection with certain unauthorized transfers of funds. According to Bladid, ISK 3 billion was transfered to the Luxembourg subsidiary of Kaupthing without any formal loan agreements or other similar documentation. According to Bladid, the funds were transfered back to FL-Group after several members of the board met with representatives of Kaupthing. Morgunbladid said it tried to confirm this story reported by Bladid but had been unable to do so.
Another issue raised in the Spotlight interview was the price Fons Investment had paid for Sterling and Maersk Air. When asked about the premium FL-Group was paying for Sterling and Maersk Air over the original purchase price, Smárason replied that Fons had paid “much more” than the ISK 4 billion previously reported (for Sterling), but then refused to elaborate, referring the issue instead to Pálmi Haraldsson.
On Monday night, on the 7 pm TV news, RÚV followed up with a story showing excerpts from Sunday’s Spotlight interview with Smárason. According to RÚV, in a telephone interview Haraldsson confirmed that Fons had paid ISK 4 billion for Sterling but that the price paid for Maersk Air was “confidential”. Haraldsson also said that neither FL-Group nor Smárason had financed the original purchase of Sterling or Maersk Air in any way; he also denied that FL-Group’s acquisition of the two airlines from Fons had been agreed to beforehand. When the RÚV reporter, Ari Sigvaldason, attempted to ask further questions, Haraldsson “hung up”.
Spotlight Monday featured an interview of Vilhjálmur Bjarnason, the chairman of the Association of Individual Investors and lecturer at the University of Iceland. Bjarnason said it was not particularly important how much Fons had originally paid for Sterling and Maersk Air. But Bjarnason did say that FL-Group had not given its shareholders adequate explanation of certain recent material transactions including the purchase of Sterling and the purchase of 15 new Boeing 737’s. Bjarnason expressed his doubts about the proposed new equity issuance and the acquisition of Sterling and Maersk Air which he said was based on “projections, not reality”. He said he thought FL-Group risk profile had “increased substantially” and that it was “hard to value” the company because of “lack of information”.
On Tuesday, Morgunbladid reported further on the price Fons paid for Sterling and Maersk Air. It quoted Haraldsson saying that the purchase price of Maersk Air was confidential and “nobody’s business but the buyer’s and seller’s” how much Fons had paid for Maersk Air, but by “special permission” of the seller, A.P. Møller, he could disclose that Fons had indeed paid for Maersk Air, but not how much.
In an editorial Tuesday titled “Increased activity in aviation”, Morgunbladid discussed FL-Group’s acquisition of Sterling and Maersk Air. The editorial starts by noting that Iceland has a “solid foundation” of experience in the aviation business going back to the aviation pioneers of the mid 20th century. It briefly mentions Avion Group, but then moves on to focus on FL-Group. Morgunbladid notes Smárason’s replies to the questions he was asked on the current affairs program Spotlight, about the premium FL-Group paid and about his and FL-Group’s alleged financial involvement in the original acquisition. It criticizes the ambiguous replies of Smárason and Haraldsson about the size of the premium FL-Group paid for Sterling and Maersk Air but lauds Smárason for his unequivocal denial of his and FL-Group’s alleged financial involvement in the original acquisitions. On the latter issue, Morgunbladid suggests it would be sensible vis a vis the shareholders of FL-Group to have the company’s auditors confirm Smárason’s reply. The editorial concludes by calling for Fons to sell Iceland Express, “the public interest demands that there be competition in air travel between Iceland and Europe.”
On Wednesday, Baugur-owned Fréttabladid summarized a full-page profile of Hannes Smárason that appeared in the Danish daily Berlingske Tidende Tuesday.
(Baugur CEO, Jón Ásgeir Jóhannesson, serves on the board of FL-Group. He and Hannes Smárason are also linked on several other fronts; among other things, they are both hold stakes in building supplier Húsasmidjan and telco Og Vodafone.)
In an op-ed in Fréttabladid’s Wednesday business section, business reporter Haflidi Helgason discussed the acquisition price of Sterling. He compared it to the evolution of the share price of Google, claiming that the original acquisition price paid by Fons was as relevant to FL-Group’s acquisition as Google’s current price is to the original IPO-price.
Separately on Wednesday, Fréttabladid ran a prominent story on FL-Group focusing on the upcoming equity offering and the company’s plans to expand into the European market for budget travel. In the story Fréttabladid quotes FL-Group CEO Hannes Smárason saying that the value of Sterling could “increase five times in twelve months” based on projections.
In an interview with the Norwegian daily Dagens Næringsliv on Wednesday, Smárason said the Sterling investment would “quadruple” next year and Sterling would become “Europe’s second largest budget” airline with profits of “10 per cent”.
On Wednesday, Fréttabladid also profiled Fons co-owner Pálmi Haraldsson, and interviewed Landsbanki co-CEO Sigurjón Árnason about the bank’s participation in FL-Group’s new equity offering. When asked how much Landsbanki stood to gain in fees from its underwriting of the placement, Árnason refused to reply citing “bank secrecy”.
On Thursday, the Insider column of Morgunbladid’s weekly special section on business addressed some of the issues currently surrounding FL-Group. Under the headline “Has the full story been told?”, Insider claimed that the business community was counting the days to FL-Group’s upcoming extraordinary shareholders meeting. According to Insider, “many people are convinced that the full story of the Sterling acquisition has not yet been told”. Insider said that while no-one would claim that CEO Smárason was lying about alleged transfers of funds from FL-Group to assist with Haraldsson’s acquisition of Sterling, many of Insider’s correspondents believed that the full story had not been told. Insider observed that the upcoming shareholders meeting was the proper forum for shareholders to ask such questions as they might have of FL-Group’s CEO. Insider also wrote that “it will be interesting to see if [Smárason] provides all relevant information on his own initiative or if individual shareholders will request such information”.
According to FL-Group’s website, FL-Group’s shareholder meeting will be held on Tuesday, November 1, at 2 pm at the Nordica Hotel in Reykjavík. The agenda has three items: “Proposals by the board for amendments to the company’s articles of association; elections to the board; other matters.” A new slate of directors has been nominated.
Today, Friday, RÚV reports Smárason saying Thursday at an Icelandic travel services conference that FL-Group had paid a “low price” for Sterling. According to RÚV, Smárason said that if Sterling’s operations went according to plan, Sterling would be worth “five times as much within a year”.
RÚV also quotes one current board member of FL-Group, Einar Ólafsson, saying that he had criticized FL-Group’s acquisition of Sterling within the board of directors because FL-Group was “paying too much” for Sterling and that the acquisition was “too risky”. Ólafsson, the chairman of the air freight company Bláfugl which FL-Group acquired earlier this year, is not being nominated for re-election.