The latest development in the wrangle for Eircom between the Valentia and E-Island consortiums may result in the government being urged to change a provision in Ireland's taxation laws. Currently it appears that Sir Anthony O'Reilly's Valentia consortium is on the verge of winning control of the Irish telecoms company with a recommended bid of 3 billion euros (£1.84 billion) at 1.365 euros per share compared to E-Island's previous offer of 1.36 euros.
Sir Anthony's offer is backed by the Employee Shareholder Ownership Trust (Esot) which owns a 14.9 per cent stake in Ericom. Comsource, a 35 per cent shareholder has agreed to sell to Valentia but can pull out of that arrangement if a further cash offer over 1.355 euros is submitted.
In response to the news, E-Island says it is biding its time before deciding how to go forward but it is determined to stay in the race - 'we will obviously take our time and look at the specific details of the offer, but we are in no rush to go anywhere' said a spokesman. However, the general opinion among analysts is that the backing from the Eircom board, Esot and Comsource for Valentia has strengthened its position and E-Island is unlikely to be able to make a higher offer because it will have to be as much as 1.50 euros in order to persuade Comsource to bat for its corner.
The change in the tax laws revolves around the Esot, which plans to reinvest the gains from the sale of its shares in Eircom - but in order to do so the Esot must first change the terms of the trust under which it was formed three years ago to allow the telco's staff to participate in the flotation of the group, and for the Esot to continue to distribute tax-free shares to its members. Ultimately, the decision lies with Finance Minister Charlie McCreevy and it is likely that he will concede as he has indicated in the past during a previous Valentia bid of 2.7 billion euros that he is amenable to such a change. The Dail is currently debating the issue.
The next step forward is for Eircom to reballot the Esot's members on the higher offer - the telecoms company has set a period of 28 days in which Valentia must post its offer document. This latest increased bid by Valentia is the eighth time the offer has been raised since Eircom was put up for sale in October last year.
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