The Telecom share prospectus, to be published tomorrow, will say that Swedish group Telia is to sell its 14 per cent stake in the group if its merger with Telenor of Norway goes ahead. However it is understood that the shares will not necessarily be sold to Telecom's other joint venture partner, KPN of Holland, and may instead be placed in the market in the months ahead.
The Telia shareholding has been a difficult issue for the Government and its advisers to deal with in the prospectus. This is because Telia is currently in merger talks with Telenor and is awaiting an EU competition ruling on whether the merger can go ahead.
Telenor is a shareholder in ESAT Digifone and, if the two companies merge, then either the Telecom shareholding or the Digifone stake would have to be sold. Eircell, a subsidiary of Telecom, competes directly with Telecom on the Irish market and one group could not hold shares in both companies. Telia currently holds 8 per cent of Telecom and this will rise to 14 per cent as its takes up the right to buy extra shares. The prospectus is expected to say that if this merger goes ahead, then Telia will sell its Telecom shares. It had been expected that it would commit to sell them to KPN, which would have left the Dutch group with a 35 per cent shareholding. However the prospectus is expected to say that the shares could also be sold into the market at a later date.
If the Telia/Telenor merger does not go ahead, the Swedish group can retain its shares.
The prospectus is also expected to contain rules which will stop KPN from increasing its stake in Telecom substantially for a period of time, probably for 18 months or two years. The precise terms of this and how it deals with the possibility of the KPN shares being offered for sale is not clear. KPN will also undertake not to sell any Telecom shares for a period.
The Government, meanwhile, has decided in principal to dispose of its entire 50.1 per cent shareholding. It will retain the right to reduce the amount of shares being sold right up to the flotation date in early July. However such is the level of likely demand, that barring a collapse in the market, it will sell almost all its shares in the flotation. The only shares to be retained will be a small number to allow a loyalty bonus to be paid to shareholders in a year's time.
The final details of the flotation have been agreed in a series of late night meetings this week. There are understood to have been some tensions between the sides, with the Government arguing for a relatively high float price and Telecom management arguing that an unrealistically high valuation should not be set.
This issue was resolved - although the final float price has still to be agreed. The position on the KPN/Telia holding was also only determined after prolonged and complex discussions.
Contrary to some reports, an executive share option scheme in Telecom is not expected to feature in the prospectus.
The exact listing price of the shares and the allocations to institutional and private investors will be finalised after the closing date for share applications near the end of this month.
