Australian investment fund Babcock & Brown and the Eircom employee share ownership trust (Esot) have begun their due diligence examination of the telco's accounts in advance of a €2.36 billion takeover bid.
The process could continue for four or six weeks, although some believe it will conclude before that. "We understand that due diligence can typically take a month or more to complete. However, there is a chance that this process could be accelerated given that Swisscom came close to acquiring Eircom six months ago," said Davy analyst Jack Gorman in a note yesterday.
The joint approach from the Australians and the Esot values Eircom at €2.20 per share in addition to a proposed dividend of 5.2 cent per share. The telco's stock closed one cent higher on the Dublin market last night at €2.17.
After several weeks of talks, Eircom and its suitors issued separate statements early yesterday to effect that they had entered into a "bidding agreement" for a due diligence exercise.
This process is not expected to uncover any big surprise about Eircom's business. The company was the subject of a similar examination in November when Swisscom made its abortive approach. No issue emerged then to block a transaction, although a deal was ultimately halted by the Swiss government due to its concerns about its expansion strategy.
No formal bid is likely until due diligence comes to an end. Only on foot of a formal offer would Eircom's board decide whether to recommend an offer.
While the board has not declared its stance, they are likely to recommend an offer on the basis that a deal at €2.20 per share would represent a 48 per cent return on the €1.55 per share investors paid in its flotation in March 2004.
The value of the proposed transaction is significantly below a price of more than €2.40 per share mooted by Swisscom, but the deal would be structured in a way that would enable members of the Esot to avoid big tax bills by receiving guaranteed preference shares in the company after its sale in return for their 21.5 per cent stake.
Babcock & Brown own just short of 29.9 per cent, bring the combined stake of the suitors to more than 50 per cent. This greatly increases the likelihood of a deal.
