US rural mobile carrier Western Wireless Corp agreed to sell Dublin, Ireland-based Meteor Mobile Communications Ltd to a subsidiary of Eircom, subject to shareholder and Irish regulatory approval. Under the terms of the deal, Eircom will to issue 420m euros ($511m) in new shares to fund the acquisition. The deal is expected to close in October.
Eircom had been the only remaining bidder for Western Wireless’s Irish unit after two other bidders withdrew. The carrier’s one-for-two rights issue will be priced at about 1.10 euros ($1.32) per share, which according to the outfit is a discount of 41% to Friday’s closing price.
While the acquisition does make good strategic sense for Eircom, there are concerns that the price is expensive relative to other acquisitions in the sector and might dilute earnings in the near term. It was no surprise then the market reacted badly to the news, and shares in the carrier fell 7.98% to 1.73 euros ($2.08) on the London Stock Exchange as of 3.30pm BST.
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. Meteor meanwhile has a market share of about 9% to 10%, and 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 and by the end of June had more than doubled its subscriber base to 410,000, up from 181,000 at the end of 2003.
Eircom on the other hand is Ireland’s dominant fixed-line group and has a market share of roughly 80%. The sale of its mobile arm in 2001 triggered a VC takeover battle for the operator. 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.
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 operations 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.
