The board of Eircom is highly unlikely to support a cash bid from Mr Denis O'Brien's eIsland group at €1.10 a share, a price that Eircom believes significantly undervalues the former State-owned telecoms group.

Eircom would only confirm yesterday that discussions between the two groups and their respective advisers were continuing. It is understood that while e-Island has signed a confidentiality agreement which would allow it to carry out a full due diligence of Eircom's fixed line and multimedia businesses, the two sides are still well apart on the terms of a "standstill" agreement.

Such an agreement, which Eircom says is an integral part of any bidding for a public company, would require e-Island to withdraw for a specified period if the Eircom board rejects its formal offer. In effect, this would prevent e-Island making a hostile bid for Eircom for a specified period - probably 12 months - if Eircom rejects the offer.

It is understood, however, that e-Island is strongly opposed to a standstill arrangement, on the basis that it believes it is not in Eircom shareholders' interests to make e-Island's due diligence of Eircom subject to such an arrangement. "Why is a standstill agreement in shareholders interests?" one source asked.

But Eircom sources said there was no question of Eircom agreeing to due diligence, including releasing forward-looking information of the group's operations, unless it gets the standstill agreement from eIsland.

Market sources have warned that Eircom cannot afford to adopt an over-aggressive approach to e-Island unless it has some alternative strategy to offer its shareholders if e-Island ultimately walks away.

If e-Island does walk away because Eircom insists on a standstill agreement, the board and management could face yet another acrimonious meeting when shareholders meet next month to vote on the Vodafone acquisition of Eircell.

As with its previous offer for the Eircom fixed-line business, any offer that emerges from the current round of discussions will be conditional on the sale of the Eircell mobile phone business to Vodafone and completion of due diligence.

But one fundamental difference between e-Island's first offer and the latest approach is that e-Island is now likely to make a formal bid for Eircom while the first approach was to buy the fixed-line assets with the multimedia interests being retained by Eircom.

This would mean that a successful bid would mean the loss of Eircom's stock market listing, contrary to reports that Mr O'Brien wishes to retain the Eircom listing. "That cannot happen; if a successful offer is made the company will be delisted and become private," said one market source.

Sources close to Eircom said the revised offer for all of Eircom "doesn't stand up to scrutiny" and is "very low in terms of earnings multiples". But it is understood that the e-Island group is emphatic that the suggested €1.10 a share offer is fair, especially given the slump in telecom share prices in recent months and the fact that e-Island is making an offer for a company which has heavy debt and restructuring charges to bear.

It is understood that e-Island believes that Eircom's Eircom Net and Indigo Internet service providers and Golden Pages directories are worth only a few cents per share. But analysts said they are probably worth between 10 and 12 cents. This suggests that e-Island is now putting a lower valuation on Eircom's fixed-line business than it did last October.

It is understood that Mr O'Brien believes that most of the multimedia business has little value.

In a reference to the web development company which closed last month after Eircom cut off its financial support, one industry source said: "How many more Ebeons are out there?" But some market sources said that the new price is justified given that an offer for Eircom's share capital - not just its fixed line assets - would mean that e-Island would have to assume Eircom's debt and restructuring costs.

Mr Ronan Reid, of Dolmen Butler Briscoe, said last night: "We think this a good deal given that e-Island is assuming a lot of debt. If you allow for the debt, this is a 20-30 per cent increase from the last offer."

Other analysts were not as convinced, but there was a general view in the market that Mr O'Brien is in a very strong position unless Eircom can find some counter-bidder who might drive the price higher. At this stage, there is no sign of such a third party.

The general view among analysts is that e-Island's suggested offer may be as much as Eircom can expect to get in the current negative environment towards telecom stocks. "The Eircom board simply cannot say no without anything else to offer shareholders. At the end of the day, the shareholders should decide," one fund manager said.