Eircom and Babcock & Brown are moving towards final discussions on the terms for a due diligence examination of the Irish company's books by the Australian suitor.
The Eircom board will meet before the end of this week to discuss the terms of access for Babcock & Brown, which has accumulated almost 29 per cent of the telco since its initial investment last autumn.
The international investment bank Credit Suisse declared shortly after the close of business yesterday that it had acquired 3.1 per cent of Eircom just before the St Patrick's Day holiday on Friday. The bulk of its 33.24 million shares are held by Credit Suisse Securities (Europe) Ltd and the remainder are held by Credit Suisse International.
The bank's intentions for this investment were not clear last night.
The discussions on due diligence with Babcock & Brown come almost a month after Eircom declared that it had received a preliminary approach from the Australians, who rapidly increased their stake to 28.8 per cent from 12.5 per cent. Assuming agreement on access to Eircom's books is reached, due diligence could begin as early as next week.
Two issues remain outstanding for the Eircom board, which is chaired by Sir Anthony O'Reilly. These centre on the price Babcock & Brown would pay to take control of the company and the extent to which the Australians have the financial capacity to execute a transaction.
It is understood the Australians believe they have satisfied Eircom on the financing of a deal. Still unclear, however, is the question of the price they would pay. Babcock & Brown paid no more than €2.20 per Eircom share as it built up its stake at a cost of more than €500 million. Thus they are unlikely to pay much more than that, if anything more, to conclude a deal.
The valuation question is highly sensitive for Eircom, given that the company was poised to realise a little above €2.40 per share in inconclusive takeover talks late last year with Swisscom. Justifying a price at a significant discount to that proposed by Swisscom may prove difficult for Eircom. If, as is likely, the company decides to push ahead with a sale process at around the €2.20 level, it may point to the absence of any other bidder.
Babcock & Brown is believed to have stopped buying Eircom shares now that its stake is just below the 29.9 per cent level that would trigger a mandatory bid. Eircom shares closed three cent stronger last night at €2.17, after the price dropped when the Australians withdrew from the market.
It is believed there has been no formal dialogue between Babcock & Brown and the staff-controlled trust, which owns 21.5 per cent of Eircom.
