EIRCOM is now a takeover target following the decision of its major shareholders, KPN and Telia, to sell their 35 per cent stake less than five months after the company's flotation. Eircom chief executive Mr Alfie Kane said details of the disposal of the shareholding should be announced within four weeks.
The share sale announcement triggered angry responses from Fine Gael and Labour, both of which called on the Minister for Public Enterprise, Ms O'Rourke, to explain the "unexpected turn of events".
Mr Kane admitted that Eircom was "now in play" because of its two major shareholders' decision to sell. After the announcement of the news, the company's share price initially fell by four cents, then seesawed throughout the day before rallying to close at €4.14, down just five cents from Friday's closing price.
Among those mooted as possible buyers are British Telecom, MCI/WorldCom and some of the so-called "baby bells" in the US, including SBC. The latter has been buying stakes in former European state telecoms companies.
Dutch telecoms company KPN holds 21 per cent of Eircom and Swedish group Telia holds 14 per cent. KPN said it had reviewed its international activities over the past six months and had decided that one of its key objectives was the exercise of effective management control, "which is not provided for by the current investment in Eircom". Telia had been expected to sell its stake because of its merger with Telenor, the Norwegian telecoms group which owns 49.5 per cent of Esat Digifone, the second mobile phone operator. The merger means Telia has a conflict of interest because Eircom owns Eircell. However, many people had assumed KPN would increase its stake to 29.9 per cent by buying the bulk of the Telia stake. In this eventuality, the remaining 5.1 per cent of shares would have been made available to the market, under an agreement reached at the time of flotation.
Mr Kane, speaking to The Irish Times, said Eircom had been informed of KPN's decision to sell on Friday evening at 7 p.m. There had been "an element of surprise" concerning the move, he said. However, he was adamant that the sale would now bring clarity to the issue, which was a beneficial development.
He said the share disposal would be managed by the two shareholders in close co-operation with Eircom. He added that he would push for a decision to be announced within four weeks.
Three options are open to the shareholders in disposing of their shares: a trade sale (to another operator); a free float of the shares on the market to institutional investors; or a combination of these two methods. A trade sale is seen is the most likely option, as analysts believe the company needs a strong partner to help it develop its international business.
Employees hold 14.9 per cent of the company through an employee share option scheme. The trust's chairman, Mr Con Scanlon, who is also head of the Communication Workers' Union, said he favoured a trade sale to another operator. However, he said the trust would not rule anything out and, as a substantial shareholder itself, would be taking advice from its own brokers.
Mr Martin Pieters, an Eircom director and KPN executive vice-president, denied that his company's exit reflected a loss of confidence in Eircom. Mr Pieters told RTE that Eircom had experienced tremendous growth in the three years since KPN became a strategic partner, and did not necessarily need such a partner now. "The company is in excellent shape and is able to stand on its own feet now," he said.
He said KPN had not considered building up a majority stake in Eircom, nor had it considered selling out at the earliest possible opportunity. He said the company was not "turning its back on Ireland" and that the former partners "remained friends". He said there was a strategic partnership between Eircom and KPN which was still in place. There would have to be discussion as to how to continue it.
Mr Kane defended the strategic alliance, which had made great play of its links to the Unisource alliance that included AT&T. However, the Unisource alliance had weakened considerably over the years as various partners, including AT&T, left it.
"If we hadn't had the alliance, Eircom would probably still be a State-owned company," he said, adding that it had brought significant changes to the company. In fact, he said, it had lasted longer than many other alliances.
Asked why Eircom would be attractive to a buyer, he said the company was performing well, had a very healthy balance sheet and no pension fund problems.
Labour's communications spokesman Mr Brian O'Shea said the strategic alliance had been an essential part of the flotation process. He called on Ms O'Rourke to explain clearly "about the KPN pullout in particular".
Fine Gael's Mr Ivan Yates said Ms O'Rourke must explain why the public was given the impression that KPN was a long-term strategic stakeholder and why Eircom share-buyers were led to believe that KPN would buy Telia's 11 per cent stake if it was put up for sale.
A spokesman for Ms O'Rourke said the mini-prospectus received by all shareholders had referred to the fact that they would be able to sell their shares after six months.
