The sale of Eircom remained stalled last night after the board met for the second time in two days to decide between the rival eIsland and Valentia consortium. Last night's meeting ended just before 11 p.m. with no decision and talks are expected to continue through the weekend. Mr Denis O'Brien, the chairman of eIsland maintained last night that it still expected the board to endorse its offer of €1.246 per share plus a warrant worth 5.8 cents.
EIsland claimed its bid topped Valentia's bid - which also included a warrant - by something in the region of one cent.
The warrants give the existing shareholders a right to share in the proceeds if Eircom is sold or refloated by its new owner. It is understood that one of the issues on which the Eircom board was seeking clarification yesterday was the value of the warrants. EIsland has offered a cash alternative to the warrant of 4.6 cents and the board was trying to establish yesterday if Valentia, which is chaired by Sir Anthony O'Reilly, was prepared to offer a cash alternative.
EIsland maintains it was assured by Mr Ray MacSharry that the board would recommend the highest bid on the table, provided it represented full value for the company.
Both bids are accepted to have passed this threshold and eIsland is expected to hold the company to Mr MacSharry's statement.
Legal action could not be ruled out if the board decides to recommend what is clearly a lower offer. The issue for the board is that although eIsland may have made the highest bid - despite there being some ambiguity about the value of its warrants - the consortium does not have the support of the Employee Share Ownership Trust (ESOT) which controls 15 per cent of the company.
This is seen as a serious obstacle to a successful bid because a takeover would require the support of shareholders controlling 80 per cent of the equity.
EIsland has argued that it is prepared to take its chances without the support of the ESOT. It argues the company is less than two years old which means that its small shareholder base is active and has access to its shares.
The consortium plans a media blitz as part of the campaign to win over the shareholders.
It is also possible the ESOT may come on board with eIsland once the board has recommended its offer and the board was last night trying to establish what the ESOT would do under these circumstances.
EIsland has offered the trust the chance to increase its stake from 14.9 per cent to 25.1 per cent as part of the takeover. Valentia won the trust's support by offering a 29.9 per cent stake.
There was very heavy trading in Eircom shares yesterday as the market awaited the outcome of the board's deliberation, with the shares trading in a tight range around €1.30. Dealers said the trading involved hedge funds and arbitrageurs buying Eircom shares and then selling them almost instantly to lock in a profit.
Even before the Eircom takeover battle got into full swing, hedge funds and arbitrageurs had bought up about 7 per cent of the company, mainly from Irish institutions. These short-term investors were among those at the heart of yesterday's extraordinary trading in the shares.
They buy and sell shares in large quantities to take profits - in Eircom's case, sometimes a fraction of a cent. Their presence was indicated by the fact that all of the London trading in Eircom took place within a one-cent range between €1.29 and €1.30, with many deals involving fractions of a cent within that narrow price range.
At times in London, the spread there between bid and offer prices was down to a quarter-cent, with bids at €1.2975 and offers at €1.30. There was at least one deal in London yesterday of 10 million shares. If this investor bought at €1.29 and sold for even a half -cent gain, he would have locked in a profit of €50,000. A quarter-cent margin in a deal of this size would produce a profit of €25,000.
