Eircom shareholders who have received an information pack from the company this week have two decisions to make between now and May 11th/May 13th.
Do they want the mobile phone subsidiary Eircell to be demerged from the parent Eircom, and do they want to sell the demerged entity to the UK phone giant Vodafone?
At an extraordinary general meeting (e.g.m.) on Monday May 11th at the Point Depot in Dublin, shareholders will be asked to vote on a proposal that Eircell be demerged from Eircom. The purpose of the proposed demerger, which the Eircom board is unanimously recommending, is to restructure the business so that Eircell can be sold off to Vodafone.
Anyone who holds Eircom shares is entitled to vote for or against the proposal on the basis of one vote per share. On April 6th there were 2,207,826,690 Eircom shares in issue.
Shareholders can vote at the e.g.m. or by returning a completed Form of Proxy (blue/ white form), or a Form of Direction (orange/white form) if they hold their shares through the Eircom nominee account. These forms are included in the information pack and enable shareholders not attending the e.g.m. to direct how they want their votes to be cast. Each shareholder should return the appropriate form to the Eircom registrar, Computershare Services, in the prepaid envelope provided in the pack by 11 a.m. on May 9th for their votes to be included.
Shareholders who sign and return proxy or direction forms without filling in the boxes nominating who they want to vote on their behalf and how that proxy is to vote will be deemed to have appointed the chairman as their proxy, allowing him to vote as he sees fit. Shareholders who have returned proxy forms but then find they want to attend and vote at the meeting, can revoke their proxy instructions by sending a written notice to the company at 114, St Stephen's Green West, Dublin 2. Written notices must be received at Eircom up to one hour before the start of the e.g.m. Already irrevocable undertakings to vote for the demerger have been given by Comsource, which holds the 35 per cent of Eircom owned by KPN and Telia, and by Eircom directors who are shareholders - representing about 0.024 per cent of the shares.
In addition to the proxy and direction forms, the shareholder information pack includes an Eircom document (orange and blue cover) setting out details of the proposed demerger, information on the performance of Eircom and Eircell as well as the risks associated with the moves and Eircom's proposed strategy after a demerger. It includes a Vodafone Offer Document and Form of Acceptance, formal notice of the e.g.m., a poll card for the e.g.m., a form to indicate whether the shareholder will attend the meeting and an attendance card.
The Vodafone Offer Document (white cover) gives the terms of the offer for Eircell and information about the Vodafone group. The Form of Acceptance (white form) is the form on which shareholders must vote on the Vodafone offer for Eircell. It must be signed and witnessed and returned to Computershare Services to arrive by 3 p.m. on Sunday, May 13th.
The notice of the e.g.m - on the reverse side of the Proxy/ Direction forms - sets out the time and location of the meeting and the deadline for the return of proxy forms. The attendance card and poll card should be brought along to the e.g.m. The former provides entry into the e.g.m., while the poll card is for use at the e.g.m if a ballot is called. What reasons has Eircom given for selling Eircell? Eircell has grown rapidly in recent years but Eircom says it now faces a number of strategic challenges because of consolidation and increasing competition and rapid technological change. One of these challenges is expansion outside the domestic market. The Eircom board says it "would not receive maximum benefit" from devoting the financial and management resources required to enable Eircell reach its full potential. It says the Vodafone offer "represents a significant release of value to Eircom shareholders". Why is Eircom selling to Vodafone? Because it was the only approach that turned into a firm offer.
Is Vodafone paying enough? There are mixed views. Telecoms prices are depressed and one view is that Eircom should wait until it can get a better price for Eircell. But some analysts feel that based on the industry valuation measure of enterprise value to subscriber, Vodafone is paying a fair price for Eircell. As the deal is a share-only deal with no cash involved, the value to Eircom shareholders varies according to the movement of Vodafone shares on the London market and the sterling/ euro exchange rate. Last week a £2.055 sterling Vodafone price valued Eircell at #1.57 per share. Last night's £2.29 sterling Vodafone price has raised the Eircell value to #1.75 per share. Can the deal be abandoned? Yes. Eircom can walk away without penalty if the average Vodafone share price over the 10 trading days before the e.g.m. is below £2.20 sterling. The deal is structured as a demerger of Eircell from Eircom, which will be voted on at the e.g.m., and a separate offer from Vodafone for the demerged mobile operation. The Vodafone offer cannot proceed unless the demerger has taken place. This demerger involves the spin-off of the Eircell business into a new company to be called Eircell 2000. Vodafone would then acquire Eircell 2000. receive? Eircom shareholders will be allotted one Eircell 2000 share for every Eircom share they own. They will continue to hold the same number of Eircom shares as they had before the demerger. But the value of those Eircom shares will have fallen to reflect the removal of Eircell from the group. The Eircom shares will continue to be quoted in Dublin and London and as ADSs in New York.
Eircom shareholders will then get 0.9478 Vodafone shares for every two Eircell 2000 shares they hold. Based on a Vodafone price of £2.29 sterling, the offer values each Eircell 2000 share at #1.75. Analysts are valuing Eircom minus Eircell at between 90 cents and #1.10 which puts a total value of between #2.65 and #2.85 on each predemerger Eircom share - between the Eircom shares a shareholder will retain and their new Vodafone shares.
What should shareholders do now? Decide how you want to vote and whether you want to attend the e.g.m. Complete the appropriate forms and return them. Remember if returning the Form of Proxy (or Form of Direction if your shares are held through the Eircom nominee account) to nominate your proxy and mark either the For or Against box under the Resolution heading. If you plan to attend the e.g.m., keep the attendance card safe - it is on the lower half of the Form of Proxy. When voting on the Vodafone offer, remember to sign the form and have your signature witnessed by an independent person over 18 years.
The E.G.M.: Starts at 11 a.m. on Friday May 11th at the Point Depot, East Link Bridge, North Wall, Dublin 1. Eircom is providing shuttle buses leaving from the The Custom House every 10 minutes between 9.30 a.m. and 10.30 a.m.
