Background: Whether or not Swisscom is the latest suitor, Eircom looks set to change hands for the fourth time in the last six years, a dizzying round of musical chairs, even by the telecom industry's own standards, writes Barry O'Halloran
In 1999 the State owned Eircom, which was then called Telecom Éireann. But the Government floated it on the stock exchange and 570,000 citizens weighed in at €3.90 a-share.
The sale was part of the Government's strategy for opening up the telecoms market, and was carried out at the height of a bull market for communications and IT-related stocks.
But while the shares opened at €3.90 and at one stage reached €5, the bull stopped charging the following year. Apart from a brief period in March 2000 when its price again reached €5, Eircom spent most of that year in decline, testing a new low of €2.40 that August.
The company had a turbulent year, which wasn't helped by the fact that it paid €1.7 million in salary and bonuses to executives. It also introduced an incentive scheme for 400 managers, in the face of opposition from its small shareholders. To top that off, it lost €40 million from investments in internet companies like Ebeon and Nua.
In a turnaround on its stated policy, the company then negotiated the sale of its mobile arm, Eircell, to multinational Vodafone. Its shareholders got 0.9478 of a Vodafone share for every two Eircom shares. This ultimately worked out at around €1.25 a- unit.
Despite the fact that Eircom could have subsequently walked away from the sale, as Vodafone's price dropped below the critical £2.20 sterling mark, the board and institutional shareholders supported the deal, against the small shareholders' will.
Even as the talks with Vodafone got under way, the venture capitalists began circling the fixed-line business. Entrepreneur Denis O'Brien was first out of the traps with a €2.25 billion offer.
Earlier that year, he had made €250 million from the sale of the Esat fixed-line and mobile businesses, which he established in opposition to Telecom Éireann, to BT. The mobile arm, now called O2, is soon to be swallowed up by Telefonica.
Sir Anthony O'Reilly and billionaire financier George Soros combined to follow him with a bid nearer €2.4 billion. A cast that included Dermot Desmond and Paul Coulson separately signalled that they could enter the fray.
But it boiled down to a bitter battle between two consortia, Mr O'Brien's E-Island, backed by US-based Spectrum Equity, and the Sir Anthony-led Valentia, which was backed by Goldman Sachs, Warburg Pincus and Providence Equity. The latter was the ultimate winner with a €3 billion bid.
Combined with the Vodafone sale, the Valentia deal left small shareholders who bought on flotation with €1.30 a-share shortfall on their original €3.90 a-unit investment, a loss of 30 per cent.
But it produced one of the saga's big winners in the Eircom Employee Share Ownership Plan (Esop), which held 14.9 per cent of the plc on behalf of its workers.
After the sale to Valentia, it wound up with 29.9 per cent and 25 per cent of the voting rights. This sweetener swung the balance in Valentia's favour.
It also emerged the winner when Valentia refloated Eircom on the Dublin and London stock exchanges in March 2004. Past and present workers shared a €66 million payout, and a 21 per cent stake in the new plc worth €360 million on flotation.
The Esop's architect, former Communications Workers' Union (CWU) boss, Con Scanlon, currently a board member, got a pension worth €1 million over 10 years and a lump sum of €230,000.
Sir Anthony O'Reilly, George Soros and Providence Equity sold shares worth a total of €500 million. Its four executive directors, Philip Nolan, Peter Lynch, Cathal Magee and David McRedmond, reaped a total of €29 million from the company by the time of its second flotation.
The Esop will again be the biggest winner if the company is sold once again. Assuming that it took up its new shares in Eircom's recent rights issue, its stake would be worth close to €538 million at last night's closing price of €2.40. At that price, Australian group Babcock and Brown's 12.5 per cent holding is worth €322 million. The Australians bought most of their stake, some 10.8 per cent, for €215 million.
Board members, including Mr Scanlon and the four executives, also have varying stakes in the company.
For the potential bidder, the Eircom that is now on the block is a different proposition from the dominant mobile and fixed-line operator that was floated six years ago.
It still controls most of the lines entering the State's homes and businesses. It is preparing to re-enter the mobile market with the €420 million purchase of Meteor. That will leave it in third position to Vodafone and O2.
State regulator ComReg, the Government and its competitors all want to end its dominance in the fixed-line business, so a long-term decline in its market share looks inevitable.
The prospect of a third generation mobile licence and the purchase of Meteor offer it scope for immediate growth.
Ironically, growing Meteor means it will be competing with Vodafone, a company in which over 450,000 Irish people hold shares as a direct consequence of its original flotation.
