British Telecom's knockout $2.5 billion (£1.9 billion) recommended offer for Esat may have blown Telenor's hostile bid for the Irish company out of the water but there still remains a major stumbling-block in the form of the 1 per cent of Esat Digifone held by Mr Dermot Desmond's IIU. BT claims to have bought this stake already, but Telenor has insisted it is subject to a shareholders' agreement. This agreement, claims Telenor, requires IIU to offer the one per cent holding equally to the two major Digifone shareholders, Esat and Telenor, and cannot be otherwise sold.
Esat chairman Mr Denis O'Brien said yesterday that BT was perfectly entitled to buy the 1 per cent stake from Mr Desmond. But in its statement withdrawing its hostile bid, Telenor repeated yesterday that this acquisition is contrary to the pre-emption provisions in the Digifone shareholders' agreement.
But industry sources independent of the various parties believe that BT may have played a master-stroke by buying the Digifone stake from IIU before it makes its Esat offer unconditional.
Informed sources believe that as long as BT is not involved in the Irish mobile phone market, then IIU has the right to sell its stake to the British giant. Only after BT declares its Esat offer unconditional will BT be deemed to be involved in the Irish mobile phone market, thus bringing the pre-emption provision into play.
"It works like this. IIU can sell its 1 per cent stake to anybody - even you or me - who is not involved in the mobile market. BT is not involved in the mobile phone market for another few weeks, when its offer has been declared unconditional. It's a brilliant move and assures them control of Digifone once the Esat offer is completed," said one source.
But Telenor has long disputed this interpretation of the shareholders' agreement, and some sources believe that, unless BT and Telenor can come to some accommodation, the sale of the IIU stake to BT may be challenged in the courts.
Whatever the outcome, Mr Desmond is one definite winner. When he sold 9 per cent of Digifone to Esat and Telenor for $114 million last year, his remaining 1 per cent was valued at $12.7 million. Digifone's growth alone in the past year would probably have doubled the value of that stake, while the pivotal nature of the shareholding would undoubtedly have attracted a premium price from BT.
"Given they're paying the guts of $2.5 billion for Esat, paying over the odds for IIU's 1 per cent stake in Digifone would have caused them no bother," said one source.
Both BT chairman Sir Iain Vallance and Mr O'Brien were making conciliatory noises towards Telenor yesterday, saying they would prefer the Norwegian company to stay in Digifone as a minority shareholder.
"Telenor are our partners in Sweden and Germany, and we would like them to be our partners in Ireland," said Sir Iain.
Certainly BT would be keen to maintain cordial relations with Telenor, given that the Norwegian company is its partner in the telecoms market in Germany, Switzerland and Sweden. Mr O'Brien commented: "I think relationships will calm down."
But analysts believe that while Telenor is also keen to maintain good relations with BT, the Norwegians are furious at the intervention in Esat by its partner in other markets. Telenor is also thought to be incensed at BT's move to buy the IIU stake ahead of the completion of the Esat bid. However, some sources believe that the Norwegians will be reluctant to go to court against BT, except as a last resort.
The official line from Telenor is that it is discussing the position with BT, but industry sources said they would not be surprised if the eventual outcome is Telenor selling its 49.5 per cent stake in Digifone - an outcome that could result in BT paying upwards of another $1 billion for full control of Digifone.
The other unresolved element of the offer is Ocean, BT's telecoms joint venture with the ESB and American insurance group AIG. The most obvious move would be to merge Ocean's fixed-line business with that of Esat and buy out the ESB's 30 per cent and AIG's 20 per cent of Ocean.
It is understood that the Ocean shareholders' agreement would require BT to pay compensation to the ESB and AIG for becoming involved in the Irish telecoms market other than through Ocean. Again, BT plans talks with its fellow Ocean shareholders.
While analysts in both Dublin and London said that the $100-a-share recommended offer is at the top end of the scale, Sir Iain said: "It's a good price and a fair price, but well within the boundaries of comparable deals in Europe."
Analysts in Dublin were reluctant to comment. But one analyst said that BT is paying the equivalent of 20 times Esat's fixed-line sales and seven times its mobile sales. "This is a 30 per cent discount to the European average and justifiably so because the Irish market is small. But it's still a hefty price and indicates the price of entry to even a relatively small telecoms market like Ireland,"
The fact that Telenor - despite already having a 49.5 per cent stake in Digifone - has decided not to top BT's offer is an indication that BT is paying a full price for Esat.
