The Government renegotiated the terms under which it could claw back monies from Dutch telecoms company KPN last Friday, it has emerged. The Exchequer is to get £1.16 billion under the renegotiated deal.

KPN surprised shareholders on Monday, by announcing that it is selling its shareholding in the Irish telecoms company, Eircom, just 4 1/2 months after the company floated. However, it is required to pay the Exchequer certain monies which reflect the increase in Eircom's value since flotation. Eircom was officially informed that KPN was also selling its stake at 7 p.m. last Friday evening.

Under the original shareholders agreement, KPN and Telia, which together hold 35 per cent of Eircom, paid £383 million for the stake. A complicated formula was then used to reflect the increase in the value of the company since the Dutch and Swedish firms bought into Eircom in 1996.

This formula entails the State gaining 60 per cent of the rise in the value of KPN/Telia's shareholding after three years, above a certain threshold. Under the original agreement, the additional amount to be paid was to be determined on January 31st next. The agreement was that KPN/ Telia would pay an amount based on the lower of the following calculations: either the average of the share price over the three months to January 31st, or the flotation price of £3.07 per share.

However, on Friday, the Government through the Departments of Finance and Public Enterprise moved to copper-fasten the return to the Exchequer. An amendment to the shareholders' agreement was made and the formula changed so that the price paid was based purely on the £3.07 share price. If the share price average had been lower than £3.07 over the three months, the Exchequer would have received less. If it was higher, it would have received an amount based on the £3.07 float price.

KPN/Telia must pay the monies by February 7th and the deal means that the Government has protected its investment through ensuring that the Exchequer and the taxpayer gets the best return on the 35 per cent sale. However, it may be a different story for Eircom investors, who may see volatility in the stock in coming weeks if there is continued uncertainty over the company's future.

It is likely that there will be a trade sale of the 35 per cent stake - to another operator - which in turn may trigger a take-over bid for Eircom if the company (which is currently financially healthy) provokes strong interest from other operators. A bidding war would push up the share price, benefiting investors.

Eircom shares closed at €3.95 yesterday, down 18 cents on Monday's closing price. This represents a fall of around 4.5 per cent. However, analysts said this was in line with other European telecoms stocks, which were down.

Dealers said 1.7 million Eircom shares were traded in London in thin volumes. "Trading in general was thin and this can distort the market," said one dealer. Other dealers agreed, attaching little significance to the fall in the share price. However, it means that the share is only 4p higher than its float price.

Meanwhile, Esat Telecom surged ahead to an all-time high in strong US trade, closing up 12.5 per cent at $651/4. The share surged on reports from Credit Suisse First Boston, Esat's own brokers, who recommended buying the stock up to $75 (€72.10).