Last October the Australian investment fund acquired a 10.8% stake of Eircom for A$350 million ($265 million), while an additional 1.7% stake was acquired by Babcock & Brown, Australia’s second largest investment bank, for A$55 million ($41.6 million). The total cost for the combined 12.5% stake was A$405 million ($307 million).
Since then, the Australian investment fund has steadily raised its stake to 28.8%. It is now working with Eircom’s employee share ownership trust, which controls a further 21.8% and would give the combined entity a 50.6% stake in the carrier.
Eircom confirmed that the joint offer is valued at E2.20 ($2.70) a share, worth a total of E2.36 billion ($2.89 billion).
Takeover speculation is nothing new for Eircom. Last year it confirmed it had received a takeover approach from Swisscom at a price rumored to be around E2.30 ($2.82) to E2.40 ($2.95) a share. However, the deal fell through after the Swiss telecoms carrier was forced to withdraw after its largest shareholder, the Swiss government, got cold feet and blocked any foreign acquisitions.
Eircom is Ireland’s dominant fixed-line operator with a market share of roughly 79%. Like its fellow incumbent across the Irish sea, BT Group, it 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. Consequently, in 2001 Eircom sold its Eircell operation to mobile giant Vodafone for E4.3 billion ($5.19 billion).
Unfortunately for Eircom, the sale of its mobile arm triggered a VC takeover battle. The carrier was taken private in a E3 billion ($3.72 billion) deal by the Valentia consortium, whose stakeholders included Irish magnate Sir Anthony O’Reilly, financier George Soros, and Providence Equity Partners. But in March 2004, the carrier returned to the stock market. And then last September Eircom sold 313 million shares to existing shareholders to fund the acquisition of Ireland’s third largest mobile operator Meteor Mobile Communications for E423 million ($520 million), then owned by US rural carrier Western Wireless, which in turn was acquired by rival Alltel.
The acquisition of a mobile arm has proved to be something of a turning point for the Irish carrier, and it now seems that Eircom’s re-entry into the Irish mobile market has made it a much more attractive value proposition than it was a year ago.
