Eircom Refuses EIsland's Higher Offer, Stays With Valentia

by Jason Gorringe, Tax-News.com, London

02 July 2001

Despite a surprise last-minute counter-bid from EIsland, Ireland's fixed-line telecommunications provider Eircom confirmed after an emergency board meeting on Friday night that it still preferred the lower bid submitted by the Valentia consortium headed by media tycoon Sir Anthony O'Reilly. The consortium includes Goldman Sachs Group Inc. and Soros Private Equity Partners.

EIsland, which is led by an Irish entrepreneur, Denis O'Brien, had increased its cash offer for the former state-owned telecommunications carrier to Euros 1.32 ($1.12) per Eircom share, compared with Euros 1.27 from Valentia. Mr O'Brien said: ''Ours is the largest-ever offer for an Irish company. It is a huge quantum higher than Valentia's, and it is going to be interesting to see what the Eircom board does now."

The decision by Eircom, which would be liable to legal challenge in a normal takeover battle, is justified, says the company, because holders of 49.9% of its shares have already committed themselves to the Valentia offer. This is made up of the 14.9% stake held by the company's ESOP trust, and a 35% stake held by the Comsource consortium (formed by KPN of the Netherlands and Telia of Sweden), for which Eircom holds an irrevocable commitment. These commitments could only be broken following an offer of Euros 1.35 or more from a rival bidder.

Directors were therefore believed to have concluded that the new offer would have to be higher still before the foreign shareholders were released from the undertaking. Mr O'Brien's advisers however insisted the irrevocables could only take effect after Valentia makes its formal offer, and thus the e-Island bid had to be considered. Earlier, Mr O'Brien had described his intervention as a ''knock-out,'' and demanded its acceptance by the Eircom board.

Eircom emerged as a new company after the flotation of the former Telecom Eireann state-run concern two years ago, but the 500,000 small shareholders have seen the value of their stakes slump severely since then. Even the higher EIsland bid falls far short of returning them the original value of their purchases. Last month Eircom sold its mobile phone division to Vodafone, and the current fight for control of the company affects fixed line and other telecoms services.

Mr O'Brien, one of the most colourful figures on the Irish business scene, has spent most of this week giving evidence to a tribunal of inquiry in Dublin into possible payments made to a politician involved in a decision to grant a mobile phone licence to a telecommunications company he previously ran. Asked whether his bid would be affected by negaive publicity surrounding his appearance before a judiial tribunal into political corruption, he replied: "When one of the largest financial institutions in the world, JP Morgan Chase, underwrites an offer for a company worth Euros 3 bn led by myself and my team, I think that's the answer to that particular question."

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