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August 31, 2005

Eircom prices shares for Meteor purchase

Irish telecoms operator Eircom Group Plc announced details of a rights issue to fund the acquisition of Ireland's third largest mobile operator, Meteor Mobile Communications Ltd. The rights issue is in line with the terms of the deal previously announced in late July, when Eircom agreed to purchase Meteor from its American owner, Alltel Corp.

By CBR Staff Writer

Eircom is looking to raise 423m euros ($520m) for the Meteor buy, and will issue of 313 million new shares, representing 29% of its enlarged issued ordinary share capital. The five to 12 rights issue will be priced at 1.35 euros ($1.66) per ordinary share, a 24% discount to Monday’s closing price of 1.78 euros ($2.18).

The 1.35 euros ($1.66) per share price is actually higher than the price of 1.10 euros ($1.35) first mooted by Eircom in July. The issue is be underwritten by Morgan Stanley and Goodbody Stockbrokers, and an EGM will be held in September to approve both the Meteor purchase and the rights issue.

Offering the rights issue at a subscription price of 1.35 euros is a significant achievement and is underpinned by the strong strategic rationale and the expected financial benefits of the Meteor acquisition, said CEO Philip Nolan in a statement.

Like other western European markets, the Irish mobile market is pretty well saturated, with mobile phone penetration rates at about 96%. It is dominated by the two leading operators, Vodafone Group Plc and O2 Plc, which between them control 90% of the Irish mobile market.

Meteor meanwhile has a market share of about 9% to 10%, but Eircom wants to double this to 20%. It will have a tough fight on its hands, especially as Meteor is mainly targeted at the youth market, which is made up of mostly pre-paid customers rather than the more desirable contract customers.

Meteor reported relatively modest annual revenues of 93.9m euros ($113m) for 2004, but is still growing its subscriber base to approximately 410,000, up from 181,000 at the end of 2003.

Eircom is Ireland’s dominant fixed-line operator with a market share of roughly 80%. However, the sale of its mobile arm in 2001 triggered a VC takeover battle. The carrier was taken private in a 3bn euro ($3.72bn) deal by the Valentia consortium, whose stakeholders included Irish magnate Sir Anthony O’Reilly, financier George Soros, and Providence Equity Partners. But then in March 2004, the carrier returned to the stock market.

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Like BT Group Plc, Eircom fell prey to the prevailing financial wisdom of the time that fixed-line operators should spin out their mobile operations in order to concentrate on core business and allow for flexible growth opportunities for the mobile unit with no shackles to legacy communications.

Eircom followed BT’s move and sold its Eircell operation to mobile giant Vodafone for 4.3bn euros ($5.19bn) in 2001. Disastrous spin-offs such as these have meant that fixed-line operators such as Eircom and BT have struggled to adapt to falling traditional call revenues, and have had to rely increasingly on broadband offerings.

Eircom’s re-entry to the mobile space now means that BT is now the only western European carrier without a mobile arm.

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