Eircom's new owners, led by Australian fund Babcock & Brown, plan to sell off a stake in the company or float its shares on the stock exchange within the next three to five years, according to a circular on the current €2.36 billion takeover deal to members of Eircom's employee share ownership trust (Esot).
While the deal will increase the Esot's stake in Eircom to 35 per cent, the trust told its 14,400 members in a circular on the deal that there would be "more risk" in their investment after the takeover than the risk in their current stock market stake in the company.
However, the trust said the tax-free dispersal by June 2009 of €300 million in preference shares in the bid vehicle, BCM Ireland Equity, would compensate for that increased risk. It also said bank guarantees on the preference shares and a reduction in the employee share ownership plan (Esop) loan to €27 million from €105 million would also compensate for the increased risk.
There is no detail in the circular about the timing of any sale or flotation, although the document makes it clear that such developments are already on the agenda. While stating that there is no market in ordinary shares in the bid vehicle, the trust cited such a liquidity event as one of four mitigating factors.
"BCM (ie Babcock & Brown) and the Esot intend to effect a listing or trade sale of BCM Ireland Equity shares in three to five years," it said.
Preference share distributions were listed as another mitigating factor. According to the document, a distribution of €80 million to Esot members next November will be followed by another €80 million distribution in June 2007 and two distributions of €70 million in June 2008 and June 2009.
"The distributions of preference shares in accordance with the redemption schedule. . . would mean that participants with full notional allocations would each receive approximately €30,000 by June 2009," the document said.
The other mitigating factors were the Esot's €70 million stake in Vodafone, which dates back to the sale of Eircom's former mobile unit Eircell, and the Esot's right after three years to convert its shareholding each year to Babcock & Brown shares in Australia.
Esot members must vote on the transaction by July 7th. The Esot recommended the takeover to its members, but the deal cannot pass without a simple majority of the trust's members.
In a letter to Esot members, the trust chairman Jerome Barrett said the offer would fail without support of the trust members and said such an outcome "would potentially be seriously adverse to the interests of participants".
The Esot cited the rise in its shareholding "and increased influence the Esot will have over the business of Eircom". The offer "represents an attractive price for Eircom ordinary shares compared with the price prior to speculation about a Swisscom approach, and lock in a bid premium of 35 per cent. . . worth over €100 million to the Esot", it said.
