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Eircom takeover may benefit shareholders

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — A carve-up of former state company Eircom appears inevitable after confirmation that takeover negotiations are under way on the mobile and fixed-line businesses.

The series of deals could leave about half a million beleaguered shareholders with a profit.

Entrepreneur Denis O’Brien, 42, stunned the markets when he unveiled details of a cash offer of £1.77 billion (2.25bn euros) for the fixed-line business.

Less than a year ago, he walked away with a fortune when he sold the Esat Group to British Telecom.

He and most of his former management team, including his father, are part of a consortium called "e Island" that, he says, is fully funded and backed by international banks and financial institutions. The American Chase Manhattan Bank is understood to be the main backer.

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BT did not require O’Brien or his team to sign no-compete agreements when they bought Esat for £1.9 million (2.41m euros) last January. O’Brien made about £250 million on the deal.

In a statement, Eircom said it had received an "indicative proposal" to acquire its fixed-line business and is seeking clarification of the proposal.

Eircom also confirmed for the first time that it is in "exclusive" talks with Vodafone on the sale of it’s mobile subsidiary, Eircell.

Eircell has about 60 percent of the market of about 1.86 million mobile users.

In what would be the biggest corporate deal in Irish history, it is speculated that Vodafone will pay the equivalent in its own shares of about £4.02 billion (5.1bn euros) or about 2.31 euros a share.

In an upbeat presentation of his bid, O’Brien said it would be a "calamity" for small shareholders if it was not accepted, as it was "a big offer."

His offer is a euro per share but analysts have suggested a more realistic figure would be in the region 1.30-1.35 euros.

At least £400 million a year would have to be invested in the business.

If e Island’s bid is successful, O’Brien can apply for another mobile phone franchise in the license round for four planned for next. It would mean the wheel had gone full circle and he would be virtually back where he started.

"Our offer represents an Irish entrepreneurial solution to a difficult re-structuring situation facing the board of Eircom," O’Brien said.

O’Brien said international equity markets had been harsh in judging the value of fixed line business recently. Eircom have been experimenting with new technologies that can transmit TV and video down the copper wire.

"Assuming Eircell is sold, we believe that the fixed-line business would be an attractive proposition as a stand-alone public company," he said. "However, our offer is totally independent of any proposed deal between the company and Vodafone."

Eircom has 1,585,000 fixed-line customers and revenue rose by 3.5 percent last year to £1,301 million last year. It is the cash cow of the company, though competition is getting stiffer.

A former assistant bank manager and personal assistant to Dr. Tony Ryan, who founded Ireland’s budget airline, Ryanair, O’Brien is also involved in local radio and an electricity company operating in Ireland’s partially deregulated market.

He has also been significant investor recently in a number of start-up high-tech companies.

Unions had difficulties with the Esat Group but the leader of the Communications Workers Union, Con Scanlon, said he was not concerned about an O’Brien takeover.

He did not believe O’Brien would let "union recognition come between him and making another £300 million."

A staff trust owns 14.9 percent of Eircom and Scanlon said O’Brien had rung him to assure him it was "a friendly offer."

"I got the impression he was anxious to do business with us," Scanlon said. "We obviously have our own agenda in all of this, not least of which is to continue to be a substantial shareholder in the company on behalf of the workers."

Eircom had already been planning to float off its multi-media business next year.

Whether the sum of the parts in a company break-up brings a full return of the 3.90 euros floatation price of July 1999 remains to be seen.

The float on the stock exchanges in Dublin, London and New York led to the biggest share buying spree in Irish history, with more than 500,000 becoming stockholders — many for the first time.

Since the IPO, the share price lost more than a third of its value as part of the general overall rout of telecommunications stocks. However, all the takeover speculation has led to a rally to 3.30 euros.

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