Shares in Eircom rose sharply in heavy volumes on the London market as talks continued between Eircom management and Sir Anthony O'Reilly's Valentia consortium.
Eircom shares closed up five cents on #1.22, their highest level since the Eircell sale to Vodafone. Almost 4.5 million shares were traded.
Meanwhile, it is understood that representatives of Kohlberg Kravis Roberts had direct discussions with Eircom management last Friday. But it is understood that KKR has made no financial proposal although there is nothing to prevent KKR entering the process once the takeover clock begins ticking.
Depending on when the discussions with Valentia conclude, the Eircom board will then meet to discuss the two proposals from Valentia and Mr Denis O'Brien's eIsland consortium. EIsland has tabled a firm offer of #1.22 a share plus a dividend of 2.1 cents - bringing the value of its offer to #1.241 per share.
This is understood to be about five cents higher than the indicative offer from Valentia - thought to be #1.17 a share plus a dividend of about two cents, valuing the Valentia offer at #1.19 to #1.20 a share.
But, crucially, Valentia has secured the backing of the Employee Share Ownership Trust, which owns 14.9 per cent of Eircom and can increase this to 29.9 per cent as part of the arrangement with Valentia. As well as Sir Anthony, Valentia is backed by four major international financial institutions: Provident Equity, Warburg Pincus and Goldman Sachs and Soros. EIsland has offered the ESOT the opportunity to take a maximum of 24.9 per cent of Eircom after it is bought out.
No party involved in the process would comment yesterday but it is understood the Eircom board is determined to get the highest offer for all its shareholders. This would mean that if Valentia wants the board's backing as well as the ESOT's then it will have to increase its offer beyond the #1.241 on the table from eIsland.
"The Eircom board will have to deal with a situation where it has a set of shareholders whose interests are not necessarily aligned with the interests of the majority of shareholders," said one source in a reference to the different priorities of the ESOT and other Eircom shareholders.
The ESOT will have to buy its additional shares, whether it is the additional 9.9 per cent under the eIsland proposal or the 14.9 per cent under the Valentia proposal, at whatever is the final price for the Eircom takeover. It is therefore in the ESOT's interests to have a lower price while Eircom's 450,000 ordinary shareholders - and indeed 35 per cent shareholders KPN and Telia - will undoubtedly expect the board to press for the highest possible price regardless of the ESOT's preference.
The #1.241 a share from eIsland values Eircom at #2.74 billion. If the Valentia consortium increases its offer then the ESOT would be faced with raising more than #400 million to buy the additional 15 per cent of Eircom. It is not immediately clear how it could raise such a sum although one option would be to sell the 150 million Vodafone shares it received as part of the Eircell disposal.
