ANALYSIS:Whether LIT plc can take over BCM and assume Eircom's €4bn debt is in some doubt, writes Arthur Beesley
NED SULLIVAN, Eircom's new non-executive chairman, arrives at the former State telco as its Australian owner strives to brush off an unwanted takeover approach from LIT, an investment firm that listed on London's small-cap market only weeks ago.
His appointment follows the departure of Pierre Danon, the French businessman who planned to stay in Eircom for five years when he joined the firm in 2006.
Neither Danon nor Rex Comb, Eircom's Australian chief, had any background in Irish business before they came to the firm. Thus Sullivan's elevation sends a signal that Eircom will in future be run with an eye to local nuance.
This was not strictly the case when the company's immediate parent, investment fund Babcock Brown Capital (BCM), engaged in a lengthy and unsuccessful campaign to persuade the Government to acquiesce to the formal separation of Eircom's network and retail units. The fund and its parent, investment bank Babcock Brown, sought an immediate change to Government policy, but it was not forthcoming.
Such a separation - which would have enabled BCM and Babcock to sell the retail business - was embraced in the Programme for Government agreed last summer. The plan never really took off and was put on the long finger, delaying a swift investment return for BCM and Babcock.
With LIT plc's approach to BCM putting Eircom into play, Mr Sullivan's stewardship of the board comes at a time when the company faces into what could be a fifth change of ownership in less than a decade. Still, the extent to which LIT can muster the firepower to execute a takeover of BCM and assume Eircom's considerable liabilities is in some doubt.
LIT's market capitalisation of little more than £107 million (€136.4 million) means it is tiny in comparison with Eircom, BCM's prime asset. Eircom's debt exceeds €4 billion and the firm was valued at €2.4 billion when BCM took over the business with the Eircom employee share ownership trust (Esot), which has a 35 per cent stake.
LIT's current investments are of considerably smaller scale. The firm was formed to assume the interests of an investment trust run by its parent, Laxey Partners.
The portfolio includes a 6.7 per cent stake in BCM, interests in a number of Sri Lankan tea companies, and shareholdings of less than 1 per cent in Swiss construction firm Implenia, British software company Civica and South Korean construction firm Sambu.
On that basis, it is difficult to see how LIT could make a convincing case that it would make a better fist of running BCM. Still, the very fact that BCM should find itself pushed on to the defensive in the face of an approach from a suitor of LIT's scale illustrates how badly fortunes have turned for BCM and Babcock. The fund's shares are down 59 per cent in the past year, while the bank's shares are down 95 per cent.
In one analysis, LIT is merely seeking to force a decision from BCM on a long-awaited return of capital to shareholders. An indicative takeover proposal is quite an aggressive way of doing that.
As BCM struggles to regain investor and bond-holder confidence for its discredited business model, LIT's intervention could yet force other potential bidders into the open. Credit crunch notwithstanding, Eircom's banks are unlikely to stand by while BCM's market capitalisation puts a value on the fund of only Aus$338 million (€176 million).
Poll question:
Will Eircom customers benefit from yet another change of ownership?
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