Mr Denis O'Brien's eIsland consortium has made a new offer for Eircom of around €1.36 per share in a move aimed at ousting rival bidder Valentia which has had exclusive negotiating rights to buy the former State telecoms company.
The Eircom board is to meet at 10 a.m. today to consider the offer submitted late last night. EIsland has been forced to up its offer in an effort to unlock 35 per cent shareholder Comsource from undertakings it gave to Valentia.
EIsland's previous bid was rejected by Eircom. This was because Comsource said it was legally bound to accept the Valentia deal until another offer of more than €1.355 in cash was made. Comsource is owned by Dutch telecoms group KPN and Swedish group Telia.
In cash terms, the last eIsland bid was 5 cents higher than the Valentia bid. The new offer is nine cents higher. It is understood that the offer is a straight cash one and it will cost eIsland an extra €88 million.
Previous offers from both groups have featured two formulas: one where shareholders are offered smaller upfront payments and the promise of warrants that can be cashed in after three years, or one slightly bigger payment now, but no warrants later. EIsland had offered up to 12 cents and Valentia 7 cents, in the form of warrants.
EIsland's offer will put the Eircom board in an extremely difficult position and today's discussions could lead to further meetings on the issue, unlike the last time when it could quickly reject eIsland because of the Comsource undertakings.
A key player is the Employee Share Ownership Trust (ESOT) which pledged its allegiance to Valentia early in the bidding process. The ESOT holds 14.9 per cent of Eircom and can increase its stake to 29.9 per cent if Valentia buys it. The lower the eventual price, the less the ESOT will have to pay to increase its stake.
Several sources say that there are no circumstances under which the ESOT will entertain eIsland. "They just don't like O'Brien or his plans for the company," said one source. The Valentia bid has already been recommended by the board and is currently being voted on by ESOT members whose votes are due back by July 25th.
However, despite the ESOT's reservations, the Eircom board will be under pressure to recommend whatever the highest offer for the company is. Small investors comprise 22 per cent of Eircom, or 480,000 shareholders. Combined with Comsource, their support would strengthen eIsland's hand, even if the ESOT held out. To be successful, a bidder must get 80 per cent acceptances from shareholders. This of course, assumes that Valentia does not improve its own bid.
The Valentia offer is a formal one, whereas eIsland's is an indicative offer. However, if recommended by Eircom it can be quickly translated into a formal offer, possibly as early as next Monday.
EIsland is backed by JP Morgan and its parent Chase Bank, while backers of Valentia, chaired by Sir Anthony O'Reilly, include Goldman Sachs and Providence Equity Partners.
Meanwhile, it is understood that the European Commission has informed Valentia and Eircom that it has no jurisdiction in deciding whether the proposed deal meets competition laws. This is because under the Valentia proposal nobody will have sole or joint control of the company.
