Business Opinion: The scene opens in the London offices of an international fund manager, writes John McManus.

It is late in the afternoon, an equity salesman from an international investment bank is trying to interest his fund manager client in the up coming Eircom flotation.

Fund manager: Yeah....Eircom. What's the story?

Equity salesman: It's a unique opportunity. A fixed line only play, but unlike say...BT... the market is relatively insulated from competition. We are talking very strong free cash flow and a dividend yield of up to 6 per cent. Great defensive stock...

Fund manager: Yeah, yeah. But don't the unions own half of it or something?

Salesman: You mean the Employee Share Ownership Plan - they have a 30 per cent interest. They will probably participate in the primary offering, but still get diluted to around 28 per cent.

Fund manager: But aren't they just a front for the unions?

Salesman: I know what is confusing you. The chairman of the ESOP is Con Scanlon, who is the head of the biggest union at the company, the Communications Workers Union. But the ESOP actually holds shares for around 12,000 past and present employees.

Fund manager: Con Scanlon...isn't he the deputy chairman of the company as well?

Salesman: That's right.

Fund manager. How did he swing that?

Salesman: Some very fancy footwork when the company was taken private by Valentia in 2001. The ESOP's 15 per cent was the deal breaker and Scanlon played Valentia off against Denis O'Brien's eIsland expertly. He ended up extracting a 30 per cent interest and two board seats as the price of his support.

Fund manager: Really? How did they get their 15 per cent to begin with?

Salesman: Oh that happened back in 1998.

Fund manager: Back then? They must have paid handsomely for it. Wasn't Eircom worth something like €7 billion when it went to the market in 1999.

Salesman: They paid €241 million...well it was €114 million and they borrowed that.

Fund manager: What?

Salesman: The unions refused to play ball with privatisation unless they got a big chunk of the company.

Fund manager: Why didn't management just fire the lot of them?

Salesman: Couldn't. The unions stuck their heels in when the company was spun off from the Department of Posts and Telegraphs in 1983. They all got letters guaranteeing them their jobs.

Fund manager: Ah...so they traded in the letters in exchange for the first 15 per cent.

Salesman: Er ...not quite. They got 5 per cent for changes in work practices and paid €241 million for the other 9.9 per cent. But the company coughed up €127 million of that in exchange for a new work agreement and staff pension contributions.

Fund manager: But they kept the job guarantees?

Salesman. Yeah.

Fund manager: But you are telling me to invest in this company because it will continue to aggressively cut costs to boost cash flow and pay me a nice big dividend. How are they going to do that if they can't take a hatchet to the head count?

Salesman: They aim "to reduce head count, in partnership with the trade unions, to approximately 7,000 by 31 March 2008, or earlier if possible to do so".

Fund manager: How many to they employ at the moment?

Salesman: At the end of last year it was 8,191.

Fund manager: So they will get rid of around 300 a year. Not exactly a massacre... and that stuff about in "partnership with the unions"; that's code for no compulsory redundancies isn't it?

Salesman: Yeah...probably cost a few quid to get rid of them.

Fund manager: So...let's see if I have got this right. The Eircom staff have ended up with 30 per cent of the business but not had to suffer a single compulsory redundancy.

Salesman: You forgot the €119 million in Vodafone shares the members got when Eircom sold Eircell in 2001, and the €70 million it has in cash after paying off the original loan.

Fund manager: Hmm...what will Eircom's market capitalisation be when it floats?

Salesman: Lets see....we value it at around €3.6 billion and there is debt of around €2.2 billion. Suggests a market capitalisation of around €1.4 billion.

Fund manager: And the ESOP will end up with around 28 per cent you say?

Salesman: Correct.

Fund manager: So these guys have turned a loan of €114 million into a stake in the company worth €390 million on top of Vodafone shares of €119 million and €70 million in cash....that's €579 million, or about €50,000 a head.

Salesman: Tell me about it. A 500 per cent profit in five years. Those blokes should be running a hedge fund.

Fund manager: Those blokes should be running Eircom.

Salesman: They are...