Eircom accepts Aussie bid

Carrie Pawsey, Senior Analyst

Irish incumbent Eircom announced on Tuesday that it has accepted a bid from Australian firm Babcock and Brown, together with the Eircom Employee Share Ownership Trust (ESOT), which offers shareholders €2.20 per share, valuing the company at €2.4 billion.

Under the terms of the deal, Babcock and Brown would hold 65% and the ESOT 35%. The deal is now subject to approval from the regulator.

The rumours about the sale of Eircom have been around for a while. The accepted bid is actually lower than that of Swisscom's offer of €2.40 per share back in October 2005, but that deal was vetoed before it began by the Swiss Government blocking any foreign investment. However, this new deal is an increase on the initial listing price of €1.55 back in 2004.

Eircom has been somewhat of a hot potato in the telecoms investment world, with Babcock & Brown set to be its fourth new owner in just six years. For the operator to be a success it needs some stability as well as investment to fund its strategy going forward. Currently the operator is some €2 billion in debt, which its new owners expect to rise to around €3.8 billion post-merger.

So what will the Eircom strategy be? Clearly there is scope to grow the mobile and broadband businesses. In the mobile market Eircom owns Meteor, the smallest operator with 625,000 subscribers (around 14% market share) of which over 90% are prepaid customers. The strategy going forward is for Eircom/Meteor to move into the contract market, with Babcock's Executive Director Robert Topfer stating that the target is to achieve 20% mobile market share with an excess of 20% of the customer base being postpaid. No timescales were given on when those targets are to be achieved by.

We would also expect convergence services to be a key focus for Eircom going forward, as we highlighted when Eircom joined the Fixed Mobile Convergence Alliance (FMCA) in August 2005 and also when it purchased Meteor in July 2005.

However, there already seem to be some mixed messages on the management strategy of Eircom at board level. Babcock's Topfer is quoted as saying yesterday that he will run Eircom as 'as fully integrated business' rather than splitting Eircom's wholesale and retail businesses. However, ex-BT CEO Pierre Dannon, who will return to the telecoms spotlight as the executive chairman of Eircom post-merger, was quoted in the Daily Telegraph as saying 'we will talk to the government and the regulator to gauge if there is an appetite. We want to see whether value can be created'. Pierre Danon was also the senior advisor to JP Morgan, who advised Babcock on the deal.

Whatever the outcome, no doubt Eircom's employees will be hoping that Babcock and Brown are in it for the long term and that Eircom will not be back on the market again this time next year.

Carrie Pawsey is a Senior Analyst specialising in business strategy in Ovum's Wireless Group and has over eight years of experience in the telecoms industry.