Global Insight Perspective | |
Significance | Babcock & Brown (B&B) has launched a joint bid of US$2.9 billion for eircom with the company's Employee Share Ownership Trust (ESOP). |
Implications | We believe that the involvement of ESOP would reduce objections to the deal and help avoid the near-stalemate of NTC's US$12-billion bid for Denmark's TDC. |
Outlook | A successful deal will take eircom back to private hands, and would be the fifth time in over six years that the company has undergone a major ownership readjustment. |
Australian investment group B&B has launched a joint bid of 2.4-billion euro (US$2.9 billion) for eircom with the company's ESOP. In a statement released to the Dublin Stock Exchange today, eircom confirmed receiving a bid but reiterated that this may not necessarily lead to conclusive deal for the company to change hands for a sixth time. B&B became a major player in eircom last October, when it paid for a 12.5% stake in the operator that was used to fund the acquisition of Meteor. Since then, the investment group has built up its stake to become eircom's largest shareholder, on 28.8%. ESOP, on the other hand, controls nearly 22% of the company. Therefore, ESOP and B&B together have over a 50% stake in eircom (see Ireland: 6 March 2006: Babcock Ups eircom Stake; Becomes Largest Shareholder, 16 February 2006: eircom Nine-Month Earnings Down by US$20.2 mil , 6 February 2006: Australian Investor Eyes eircomand 10 October 2005:eircom Sells 12.5% Stake to Existing Shareholder to Fund Meteor Acquisition).
B&B and ESOP are offering to buy eircom's shares at 2.20 euro each - less than the 2.40 euro that Swisscom was willing to pay for the company last year. However, the sum is still a premium over the 1.55 euro per share paid for eircom when it listed in 2004. At the end of the nine months ending 31 December 2005, eircom had earnings of 440 million euro and revenues of 1.23 billion euro (see Ireland: 16 February 2006: eircom Nine-Month Earnings Down by US$20.2 mil and 5 December 2005: Swisscom Abandons eircom Bid)
Outlook and Implications
- Fifth Time Lucky: If the bid from B&B and ESOP is successful, it will represent the fifth time in six and half years that eircom has changed hands. At the peak of the dot-com boom in 1999, the government floated the then state-owned Telecom Eireann on the Irish, London and New York stock markets, in a move that gave the state some 6 billion euro. The effects of the market crash forced the company to sell its mobile unit eircell in 2000 to Vodafone. Two private-equity partners launched a 3 billion euro leveraged buy-out of the company in 2001, refinanced the deal in 2003 and took eircom back to the market in March 2004 with a valuation of 1.1 billion euro. If the deal proceeds, the company will again exit the market and return to private hands.
- Private Equity versus Employees: By launching a joint bid with ESOP, B&B may have led to rest internal dissentions and political blockages over its proposed takeover of eircom. For a start, the case of TDC Denmark (the Danish fund ATP – the largest shareholder in TDC – has been involved in an ongoing battle with the private-equity group NTC over the latter's US$12-billion bid for TDC), is a stark reminder of what can happen when powerful interest groups are against a bid.
Prior to the announcement of a joint bid, B&B had gone to great lengths to re-assure both employees and the government that it would not break the company up and sell its units. However, with the involvement of ESOP – an employee trust – the palpable anxiety that followed B&B's share build-up has eased. ESOP has been active throughout eircom's chequered history and once held a 29.9% stake in the company (see Denmark: 10 January 2006:Largest TDC Shareholder Rejects Bid).