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Irish telecommunications industry in turmoil

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — The Irish telecommunications market is in turmoil with both the major companies up for sale and a good chance that both will end up foreign owned.

Three days after it was announced that 35 percent of the recently privatized state company Eircom was to be sold, a hostile bid was launched for the second biggest group, Esat.

The industry was shocked when the Dutch and Swedish companies KPN and Telia said they were selling their entire 35 percent Eircom stake for in the region of £2.5 billion.

For regulatory reasons, Telia, which has merged with the Norwegian Telenor company to form a new group called Newtel, had been expected to sell their 14 percent of Eircom.

Telenor owns 49.5 percent of the Esat Digifone mobile phone company and, for competition reasons, the EU said it would only approve the merger with Telia if it divested itself of the Eircom holding.

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What caused surprise was KPN’s decision to sell its 21 percent to concentrate in developments in Eastern Europe.

Uncertainty surrounds the future of Eircom with chief executive Alfie Kane admitting it is "in play" and its shares are in the doldrums. In the race to consolidate the worldwide market, Britain’s BT or a player from the U.S. or the EU may move in.

Then came a further shock when the biggest hostile bid in Irish corporate history was launched.

Having announced it was bailing out of Eircom, the new Newtel

partnership of Telenor/Telia pitched in to try to grab the whole of the Esat group.

The initial offer of $1.59 billion for the lot, including its land line operation, Esat Clear, and its associated Internet companies, is already a non-starter as the markets have given it short shrift.

The plum asset in the Esat group is the mobile phone company which now has 367,000 subscribers on a network that covers 98 percent of the population.

Esat’s consolidated revenues for the year ending Dec. 31, 1998 were $40.5 million. The Newtel group had combined sales in excess of $9.5 billion for the 1998 financial year and has approximately 50,000 employees worldwide.

Irish entrepreneur Denis O’Brien, who owns about 12.9 percent of Esat and is chairman of the group, dismissed the Newtel attack and described the Scandinavians opening salvo of $72 a share as a "peppercorn."

The Esat camp says an offer of $100 a share would be more realistic.

O’Brien’s shares are worth almost £200 million and at least another 15 of the staff and associates will become millionaires — even at the initial Newtel offer price.

Also set to make a killing is entrepreneur Dermot Desmond whose International Investment Underwriting (IIU) owns 1 percent of Esat worth about £15 million.

A number of major U.S. investors, with over 32 percent of Esat, will have a key influence on the takeover outcome.

Esat Digifone was formed in 1996 when O’Brien’s group and Telenor were granted the country’s second mobile license. The licence for a third mobile operation has been delayed by court actions.

The relationship between Esat and Newtel has not been good in recent times. Last month, Esat began litigation against Newtel relating to the shareholder’s agreement for Digifone.

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