Company could return to state ownership

Eircom, the formerly state owned Irish phone company, will have its fifth owner in just over six years after a joint bid by Australian venture capitalists Babcock and Brown (B&B) and the Eircom workers share fund ESOP.

B&B and ESOP already have just over 50% of Eircom's shares between them. They have offered €2.20 per share to outstanding stock holders, valuing Eircom at €2.36 billion. It also means that the shares owned by ESOP, which represents 12,000 current and former employees of Eircom, is worth about €507 million. The ESOP trust currently has a 21.5% share in the firm.

However though B&B's Executive Director Rob Topfer told journalists last week that he expected a "smooth transaction", divisions between the ESOP trust and the Communications Workers Union (CWU) as well as unanswered regulatory questions about the company's future mean that the joint bid might be heading for choppy waters.

Last week, Steve Fitzpatrick CWU general secretary said he was "totally appalled" over Babcock's failure to meet the union. The CWU represents about 6,000 of Eircom's current workforce of 8,000 and accounts for 3,000 of the ESOP share holders.

Fitzpatrick said that the CWU would treat any bid for the firm as hostile unless they were consulted on the sale. It was according to Fitzpatrick "not unreasonable to expect that any potential buyer would treat the trade union group as a key stakeholder". The CWU have had no contact with Babcock since a promise on 23 March to meet with the union.

Even if the CWU anger at lack of consultation is resolved there are still other road blocks looming, the most important of which must be what scale of investment the new owners will make in the firm, particularly in the context of the 26 Counties' abysmal performance in broadband roll out.

Babcock have given a commitment that they are long term investors in Eircom and will not roll the firm over the way the Valentia trust did. However despite these reassurances there have been no firm public commitments from either B&B or ESOP on how they plan to invest in Eircom. More telling has been the silence from the coalition government and communications minister Noel Dempsey.

There have been news reports that the B&B/ESOP bid is based on a strategy of selling off Meteor, the mobile arm of Eircom only bought last year by the company, and a further proposal supported by a growing number of conservative market economists including Friends First Chief economist Jim Power and the Bank of Ireland's Dan McLaughlin who support the splitting of Eircom into two firms, one that would retain the fixed line and broadband customer base and the other which would run the actual phone network.

While in the long run it would be beneficial to see the Eircom network return to public ownership with a promise of substantial long term investment it is also a win win scenario for B& B who would buy Eircom while racking up a lot of debt, but then sell off Meteor and the phone network keeping the revenue generating customer base in a new, probably debt free company, while the public pension fund stumps up the cash for the Eircom network and finally ends the six year odyssey. Watch this space.