Eircom Board Vacillates Over Competing Bids

by Jason Gorringe, Tax-News.com, London

11 June 2001

Meetings are continuing at Irish telecoms company Eircom to try to decide between its two suitors. Company sources quoted in the Irish Times say that Valentia, the consortium headed by Sir Anthony O'Reilly, is in a stronger position than the eIsland consortium headed by Mr Denis O'Brien.

Discussions between advisers acting for the various parties over the weekend were inconclusive, but most parties involved are expecting a decision in the next 48 hours. One key source said he believed a deal would proceed at the price level currently being discussed and that today would be a "crunch day" in the process.

The Valentia bid, at approximately euro 1.28 (£1.01), is about one cent lower than that made by eIsland, yet the company's Employee Share Ownership Trust (ESOT), which controls 15 per cent of Eircom shares, and can in effect decide the contest, has said that it favours the Valentia bid despite it being lower than eIsland's. The trust is understood to believe that the Valentia bid is a better one from the perspective of the long-term interests of the company. Mr O'Brien's consortium however has indicated that it will take legal action if the Eircom board recommends acceptance of the lower bid.

The protracted negotiations taking place result from Eircom's efforts to get Valentia to close the difference so it would then have a bid which was equal to that of eIsland but also likely to win shareholder support. The Eircom board is taking legal advice on the issue of its responsibility to get the best price for shareholders.

A key issue is the extent to which it is permitted to have regard to the likelihood or otherwise of any bid it recommends being voted through by shareholders. "The worst possible situation would be for the company to recommend one of the bidders and three months later have it fail," said one source.

EIsland, for its part, believes it should be given the opportunity to convince shareholders to support it, having submitted the highest bid. The ESOT is not permitted to give an irrevocable acceptance in advance of a formal offer, so it is possible that, in the event of the bid from eIsland being recommended by the board, the consortium could persuade the ESOT to change its mind.

Despite the keen bidding which has developed, shareholders will still not get back what they invested in the privatisation of Eircom during the boom times of 1999.

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