Swedish telecoms company, Telia, has agreed not to sell its 14 per cent stake in Eircom for six months. The lock-up, which comes into effect immediately, will allow Dutch shareholder KPN to press ahead with its plan to sell its 21 per cent stake in the Irish company. Eircom is expected to announce today the long-awaited agreement with Telia which was signed last night.

But the move is unlikely to have much impact on the beleagured Eircom shares which have fallen sharply in recent months. Analysts said the shares may show some bounce after the KPN stake has been sold but said the technical overhang of shares will remain until the Telia stake is also sold. Eircom shares closed at €2.72 yesterday, well down from the €3.90 flotation price of just over a year ago and from its post-flotation high of €5. The shares were initially dragged down by the surprise announcement last November that strategic shareholders KPN and Telia intended to sell their stakes.

A profits warning in March, increasing competition in its markets and a failure to find a trade buyer for the KPN/Telia stakes further depressed the share price. Then, in June, further uncertainty arose when Telia denied that it had agreed to sell its stake in a secondary offering together with KPN.

This meant that KPN was effectively unable to move ahead with its sale because of the negative effect on potential buyers of the loose Telia holding. Potential investors would have looked for a significant price discount on the KPN stake because of the threat that the 14 per cent Telia block could be put up for sale at any stage.

With the Telia lock-up in operation until January 2001, KPN is now expected to move ahead quickly with its plans to sell its Eircom shares in a secondary offering to both institutional and retail investors. The Dutch group has said that it wanted to sell its stake at "the earliest practical date". While KPN had aimed at a July sale in its drive to raise cash to fund the acquisition of 3G mobile licences in Europe, the delay in reaching agreement on the lock-up effectively means that the sale is not now likely to take place until September. Agreement with Telia has come too late to organise a sale before the August holiday period, according to market sources.

Depending on the state of the markets and price movements on telecoms shares, KPN is likely to sell in September. It is understood that the share prospectus for investors is prepared and plans for an information campaign are already in place. If the sale were to be delayed beyond September a new prospectus including Eircom's interim results would have to be prepared.

The price at which KPN will be able to sell its stake will depend on market conditions at the time of the sale. Analysts suggest a discount to the current price of between 5 to 10 per cent may be required to sell such a large block of shares. KPN paid an effective price per share of between €2.45 and €2.55 for its stake. At a 10 per cent discount on the current €2.72 share price KPN would just about break-even on its investment in Eircom.