There is a game you can play with the boards of Irish public companies. It is to establish the personal and social connections between the non-executive directors, writes John McManus

When it comes to companies chaired by Sir Anthony O'Reilly, such as Independent News & Media or Waterford Wedgwood, this is usually a fairly simple exercise as he has penchant of populating the boards of his companies with people from his wide circle of contacts.

But Sir Anthony does not appear to be the common link in the new Eircom board, the shape of which is starting to emerge in the run up to its return to the stock market next month via an initial public offering (IPO). The only obvious connection is with Mr Donal Roche, the former managing partner of solicitors Matheson Ormsby Prentice. Sir Anthony is chairman of the firm.

Any links that might exist between Sir Anthony and the other Irish non-executive directors designate are not so apparent.

The new board members include Mr Kevin Melia, who founded, then sold, electronic components business Manufacturers Services, and Mr Maurice Pratt, chief executive of beverage group C&C, which also plans to float this year.

Mr Padraic O'Connor, the former chief executive of NCB Stockbrokers and chairman of ACC Bank, has also been asked join, as has Mr Didier Delepine, the former chief executive of France Telecom's Equant subsidiary. One other non-executive will be appointed.

With the exception of Mr Delepine - who is unknown in Ireland - the new non-executives are fully signed up members of the Irish business establishment. None of them would be out of place on the executive council of the Irish Business and Employers Confederation, of which Mr Pratt happens to be the current president.

While their mix of talents might not appeal to the managers of aggressive high-growth investment funds, the composition of the new board sends a couple of important signals. One is a that the company will comply with the new standards of corporate governance as set out in the recent Higgs report, commissioned by the Department of Trade and Industry in Britain.

There will be six non-executives, who will balance four executive director and two appointees of the Eircom ESOP (Employees Share Ownership Plan) trust - which holds just under 30 per cent of the company ahead of the IPO.

The 14th member of the board will be the non-executive chairman, Sir Anthony. His fee has been reported to be in the region of €130,000, while the non-executives fees are unknown. None of the non-executive directors will get share options.

The chief executive, Dr Philip Nolan, will be joined on the board by the chief financial officer, Mr Peter Lynch, and the commercial director, Mr David McRedmond, along with the managing director of the retail business, Mr Cathal Magee.

Deputy chairman Mr Con Scanlon - who is secretary general of the communications workers union and chairman of the ESOP - will remain on the board as a ESOP nominee along with Mr John Conroy, the chief executive of Merrion Capital Group. Mr Magee also represents the ESOP of which he is a director.

The inclusion of four executives, together with the continued presence of Sir Anthony, Mr Scanlon and Mr Conroy, will give the board continuity. But the flavour of the non-executives indicates that the company wants to break with some elements of its recent history, most significantly its poor relations with the Government since it was taken private by Valentia Telecommunications in November 2001.

Eircom's slowness to roll out broadband and some elements of its pricing policy - notably line rental - have antagonised the Government. The company has been criticised for prioritising the need to provide a return to the private equity funds behind Valentia to such an extent that the economy and wider national interest has suffered.

The replacement of Providence Equity, which owns 48.3 per cent of Valentia, and Soros Private Equity, which owns 19.5 per cent, with institutional investors that will take a somewhat longer term view should also address this issue.

The task of selling the company to these new investors will fall primarily to Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley. Salesmen from the four banks will be hitting the phones in earnest from next week when the company publishes its prospectus. A two-week marketing "roadshow" is planned after which the company will list in Dublin and London.

Interesting though they may be, the nuances of the make up of the board will not figure large in their sales pitch. The single biggest factor that potential international investors, and Irish institutional investors for that matter, will be interested in is the dividend policy post flotation.

Eircom is being marketed as something of a cash cow. It is the dominant player in a market with a very strong cash flow. Potential investors will be told that the company can sustain a dividend policy equal to yield on their investment of 5.5-6 per cent a year. This is close to top of the range paid by quoted telecoms companies.

The other more complex selling point relates to Eircom's substantial debts of €2.2 billion. The company's strong cash flow and the benign outlook for interest rates mean that Eircom should be able to make significant inroads into its debt over the coming years, which should produce a corresponding uplift in the share price.

Companies in this situation - called de-leverage plays - are attractive to certain specialised hedge funds.

The company is valued at around €3.6-€3.7 billion by the banks backing the IPO. This represents a multiple of around six times the 2003 EBITDA (earnings before interest, tax, depreciation and amortisation) of €600 million suggested by the nine-month figure of €450 million published yesterday. This multiple is at the top end of its prospective peer group, which are valued at multiples of around 5.6 times EBITDA according to NCB Stockbrokers.

The company plans to issue €300 million in fresh equity as part of the IPO. Around €200 million of this will be used to pay down debt and the remainder will be consumed by the fees paid to the advisers, the book runners and sponsoring banks.

Some of the proceeds will also be used to convert preference shares held by the ESOP into ordinary shares. Around 5 per cent of the ESOP's 29 per cent interest is held via preference and non-voting shares.

Providence, Soros and Lionheart Ventures - the vehicle through which Sir Anthony holds a 5.6 per cent interest - are expected to sell all their shares in a secondary offering. Their 70 per cent could fetch up to €800 million if a valuation of around €3.6 billion is achieved.

This represents a very significant return of €340 million on their initial capital investment of around €460 million. In addition, the shareholders shared in a dividend of more than €400 million paid last year in respect of the ordinary shares as part of a refinancing.

The ESOP is not expected to sell any of its shares and will instead buy shares in the primary offering to minimise the dilution of its stake in the company. The size of the stake held by the past and present staff will also be an issue in the coming roadshow.

But the bookrunners believe that its commitment to slowly sell down or distribute its shareholding to its members will reassure investors, as will its track record as a shareholder since the previous ill-fated flotation of Eircom in July 1999.