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Government windfall in sale of Telecom EireannBy Andrew Bushe

February 16, 2011

By Staff Reporter

DUBLIN — The government is set for a multi-billion-pound boost to its coffers next month when it sells off all of its 50.1 percent stake in Telecom Eireann, according to the prospectus details.

The shares are to be priced between £2.64 to £3.27, which will mean the Exchequer will be swollen by half the £5.8 to £7.2 billion valuation this puts on the company.

This is in stark contrast to when the flotation was first mooted two years ago and the valuation was £3.5 billion. At that time the government said it would sell a minimum of 20 percent of the company.

Just three months ago, a leading Dublin stockbroker said the maximum value of Telecom was £5.5 billion.

It will also represent a bonanza for the 11,000 employees who will own 14.9 percent after the float. Based on the upper price valuation, each of the Telecom workers will be sitting on a paper fortune of £97,527 when the shares hit the markets on 8 July.

With 1.18 million of 2.8 million adults in the country registering an interest in buying shares, financial institutions are offering special cheap loans and dealing rates.

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One broker predicted that a "wall of money" will swamp the sale and leave the minimum 40 percent of the shares reserved for ordinary members of the public many times oversubscribed.

Enterprise Minister Mary O’Rourke said she was "very encouraged" by the huge interest and the company chairman, Ray MacSharry, said he was "extremely pleased."

Another minimum 40 percent of the float has been reserved for institutional investors worldwide. The minister wants to also allocate as much as possible of the remaining 20 percent to ordinary investors.

The flotation on the stock exchanges in Dublin, New York and London, is expected to be the biggest "punt" in Irish history with about half of the 1.18 million registered deciding to buy.

It is estimated 380,000 people, or 13 percent of the population, own shares at the moment — about half of them got into the market in recent floats of buildings societies, insurance companies and agricultural co-ops.

The government had originally given a commitment to sell off a minimum of 20 percent of the company but it will now dispense with the whole 50.1 held by the Department of Enterprise.

Selling the whole government-owned share now could mean missing out if the shares soar in future years, but it would also save on the hefty costs which would be involved in a further sell-off operation for any remaining share later.

The company is currently 20 percent owned by KPN/Telia, an alliance of the Dutch and Swedish phone companies, who bought their stake in 1996. They will exercise an option to buy a further 15 percent.

The huge interest in the sale is expected to speed up moves by the government to bring forward privatizations of other state companies like Aer Rianta, the Coillte forestry company, the ESB and Aer Lingus.

The Telecom shares will be listed next month and people can apply for between £250 and £100,000 worth. Those applying for more than the minimum will find their allocations progressively scaled back.

Those that hold their shares for a year will get a bonus of a free share for every 25 held — an immediate 4 percent boost to the value.

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