SINGAPORE TECHNOLOGIES Telemedia (STT) has increased its bid for Eircom’s main shareholder, intensifying expectation that a deal to acquire the heavily indebted telco is imminent.
Shares in Eircom Holdings (ERC), the Australian investment fund formerly known as Babcock Brown Capital (BCM), have been suspended on the Sydney market while the fund’s board considers STT’s new proposal.
Requesting the two-day suspension, ERC said in a Sydney Securities Exchange filing that it may update the market today on its engagement with STT.
The fund’s share price at the time of suspension, down 46.2 per cent in 12 months, implied market capitalisation of 183.02 million Australian dollars (€106.78 million).
STT’s original approach anticipated the purchase of ERC for a price per share valuing it just below €30 million after an expected return of capital to shareholders. ERC proposed returning €78.15 million to its investors last Friday, implying that the first STT approach valued the fund at a little less than €108.15 million.
The scale of the price increase set out in the new STT bid is not known. However, the figures mooted in STT’s original approach reflect the high level of leverage that it would assume in the event that it took over ERC’s 57.1 per cent of Eircom, whose debt stands at some €3.36 billion.
Any deal with STT, which is controlled by Singapore’s sovereign wealth fund Temasek Holdings, would represent a fifth change of ownership for the business since Eircom, then Telecom Éireann, was privatised in July 1999. The company was taken off the stock market by a consortium led by Sir Anthony O’Reilly, refloated and was acquired in 2006 by BCM.
STT jumped into pole position in the latest sale process last June when the Eircom Employee Share Ownership Trust (Esot), which owns 35 per cent of Eircom, declared it was backing its approach. The remaining 7.9 per cent is held by wholesale investors affiliated to BCM’s founder Babcock Brown, an investment bank that has been in administration since March.
The scale of the Esot’s shareholding was such that its intervention in support of STT all but eliminated rival approaches from private equity firms such as Permira, CVC and Arcapita and from telecoms entrepreneur Seán Melly.
A tentative takeover approach from former Babcock executive and former Eircom director Rob Topfer, mastermind of the BCM takeover, failed to develop. Eircom’s board and management set itself against Mr Topfer’s plan, arguing that it was not in the company’s best interests.
ERC said only days after the Esot declared for STT that it had an incomplete, non-binding and indicative proposal from a consortium associated with the Singaporean company to acquire ERC’s entire issued share capital.
Proposing last Friday to return its surplus capital to investors, ERC said it continued to negotiate with STT to improve its initial proposal “with a view to being able to announce a recommended proposal that is likely to gain sufficient support from ERC shareholders”.
STT is understood to have increased its bid since then. While certain informed sources say key aspects of the proposed transaction remain to be agreed, others believe the two camps are very close to a deal and may have already reached agreement in principle on the parameters of a transaction.
