Bidding War In Prospect For Eircom

by Jason Gorringe, Tax-News.com, London

24 April 2001

The consortium bidding to acquire Eircom's fixed-line assets, led by Sir Anthony O'Reilly, former chief of H J Heinz, was attacked yesterday by Denis O'Brien, the Irish entrepreneur, who is mounting a rival bid, as "four venture capitalists that will sell Ireland out over the next three or four years".

O'Reilly's partners include George Soros, the Hungarian-born financier; Goldman Sachs, the US investment bank; Providence Equity Partners and Warburg Pincus. The bid is thought likely to be in the range of 1.15-1.2 euros a share, valuing the business at about 2.65bn euros.

Mr O'Brien, whose e-Island consortium is mainly Irish, said: 'From an Irish perspective, I think it important the national telephone company is owned by an Irish consortium rather than four financial players." E-Island's bid is of 1.10 euros per share, but this has already been rejected as too low by Eircom.

The necessary precursor to either bid is that Eircom has said it will dispose of its its mobile business to Vodaphone - this sale is likely to be approved at an extraordinary general meeting on 11th May. A problem with any bid for Eircom is that the privatised ex-state utility has 400,000 shareholders who are going to lose money on their shares at any price that is likely to be offered, given the bombed-out nature of the telecommunciations share market. Previous offers for Eircom have foundered on this rock; but this time the prospect of a bidding war may lead to an outcome which can be seen as the best possible, minimising the political damage.

Another possible problem is the role of Eircom's ESOT (Employee Share Ownership Trust), which holds nearly 15% of the company, and could stop any deal - 80% is needed to gain control in Ireland. The ESOT would have a capital gains tax problem unless a way can be found to include a share-swap option in the deal.

The O'Reilly consortium needs to take on substantial debt in order to finance the proposed deal. Goldman Sachs will act as lead adviser for the acquisition and is also likely to lead the placing of a loan package. Banks took on a large chunk of investment-grade telecoms sector debt last year, they are still keen to get involved in the leveraged loan market.

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