Eircom Board Recommends Higher E-Island Offer

by Jason Gorringe, Tax-News.com, London

16 July 2001

The bid battle in Ireland for control of Eircom, the fixed-line rump of the privatised Irish state telecommunications company, hotted up still further on Friday when Denis O'Brien's eIsland consortium made an offer at a price which released main Eircom shareholders the Comsource consortium from their conditional acceptance of the Valentia consortium's Euro 1.32 per share bid. Meeting later on Friday night, the board unanimously recommended Denis O'Brien's raised offer.

The new bid, at Euro 1.36, is above the 1.55 level up to which Comsource (made up of KPN of the Netherlands and Telia of Sweden) was committed, and means that their blocking 35% stake is now available to back the eIsland offer. The board however agonised over the attitude of the company's ESOT (Employee Stock Ownership Trust) which owns 14.9% of the shares and had also accepted the bid from Sir Anthony O'Reilly's Valentia consortium, saying that it did not want to invest the proceeds from sale of its shares back into the company if eIsland was successful since the company would be too highly leveraged.

At the 1.36 level, the board had to override the ESOT's worries - 80% of shareholders need to approve the bid for it to become unconditional, and this level is possibly achievable without the ESOT, which would then have to give in.

Mr O'Brien's e-Island consortium offer of Euro 1.36 a share in cash values Eircom at Euro 3bn ($2.55bn). E-Island has raised its offer four times from its earliest bid of about 1 Euro a share.

Analysts in Dublin say that the new bid is at or above the value of the company - but given the strong egos of the two protagonists, a yet higher bid from Valentia can't be ruled out. The board has given Valentia 14 days to come up with a higher offer, after which it will seek irrevocable acceptances from Comsource and other shareholders. Eircom has tilted the playing field, though, by agreeing a Euro 15 million fee which any counter-bidder will have to pay to eIsland if their offer is trumped. Legal in Ireland, there are many markets in which such an arrangement would be deemed against the interests of shareholders.

According to Eircom, eIsland sought - and was given - the fee to reflect the significant financial hurdle eIsland had to overcome to deal with the irrevocable undertakings. It is understood eIsland had wanted a substantially higher inducement fee. The money only becomes payable if another bidder's offer goes unconditional, that is they gain 80 per cent acceptances and can then compulsorily acquire the outstanding 20 per cent. An eIsland spokeswoman said the euro 15 million was not to cover costs incurred by eIsland to date. It was to help cover costs which would be incurred from here on.

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