Speculation that Esat Telecom may be successful in enticing a "white knight" to fend off the hostile bid from Telenor was greeted with caution on the NASDAQ market yesterday, the centre of most of the trading in Esat shares.

After initially driving ahead to a new high of over $99, Esat shares fell steadily to little more than $91 by midday in New York. The shares subsequently strengthened after Esat released its impressive fourth-quarter figures and they eventually closed on $93.875, up $2.75 on Friday's closing level. Weekend speculation had focused on a possible white knight bid from British Telecom of around $95 a share, a bid that would be $10 a share higher than the revised bid from Telenor and which would value Esat at $2.1 billion. The reaction in the market indicates that investors are not convinced about the likelihood of such a bid from BT, although market sources emphasised that such a move should not be ruled out.

One market source said that he treated the reports of a bid from BT with caution mainly because it would introduce a series of complications to what is already a complicated situation. BT is already involved in the Ocean joint venture with the ESB,, which competes directly with Esat's landline telecom business in the Republic.

If BT does intend to bid for Esat, then it would have to come to an arrangement with the ESB on the future of Ocean. "Presumably if BT buys Esat it would want to merge Esat's landline business with Ocean. BT might then be forced to buy the ESB out of Ocean or compensate it in some way." said one analyst.

Another analyst said that while a BT move for Esat made a lot of sense, the British group might also be reluctant to antagonise Telenor, with whom BT has joint venture arrangements in a number of countries. "BT and Telenor might work together comfortably elsewhere, but Telenor has made it clear that it wants to get control of Esat and particularly wants full control of Digifone," he said.