Cracks may be forming in the consortium behind Valentia Telecommunications. The US buyout funds that make up the group have not yet agreed whether to up their bid for Eircom.

Mr John Hahn, the managing director of one fund, Providence Equity Partners, confirmed yesterday that there was as yet no agreement between the partners on whether a higher bid was justified. The two other funds are Soros Private Equity Partners and Warburg Pincus. Goldman Sachs and Sir Anthony O'Reilly - who is the non-executive chairman - will also take relatively small stakes.

When asked if all the members of the consortium remained committed to the bid, he said they all had their own views on whether a higher bid was viable. Mr Hahn described Valentia as a "good partnership" that "took decisions collectively".

The group has until August 5th to match the #3-billion (£2.4 billion) offer for Eircom currently on the table from eIsland, the consortium led by Mr Denis O'Brien. If it does not improve on its #2.7-million bid, Valentia risks losing the support of Comsource, the largest Eircom shareholder which holds 35 per cent.

Spectrum Equity Investors, the fund that is behind eIsland, has already said that Eircom is a significantly less attractive proposition at the #1.36-pershare that eIsland has bid compared to the #1.27-level at which the Valentia offer - and eIsland's first offer - are pitched. Some of the private equity investors involved in Valentia may take the view that the returns on an investment in Eircom at #1.36 are not sufficient to justify the investment. There has been speculation that Warburg Pincus's enthusiasm for the deal may be waning and it did not participate in briefings given to the media yesterday.

Mr Hahn queried the viability and "executability" of the eIsland offer yesterday.

He said it was fundamentally unpalatable to the trustees of the Employee Share Ownership Trust (ESOT) - which owns a key 15 per cent stake - because of the lack of any contractual certainty.

Under Irish Takeover Panel rules, eIsland and the ESOT cannot enter into an agreement for six months after the takeover is completed. The rule, which is meant to prevent sweetheart deals, means the ESOT only has eIsland's word that it will be allowed buy 29.9 per cent of eIsland for #180 million after six months.

The issue does not arise with Valentia - which is offering a similar deal - because the ESOT is to become part of the Valentia consortium. "It is not a deal they [the ESOT] will ever sign up to," he said. By contrast, the ESOT knew who Valentia were and "are comfortable with that", he added. The #2-billion financing package put together by Valentia was also superior and did not require any debt repayments for five years, according to Mr Hahn.

He pointed out that #1.7 billion of the #2 billion borrowed by eIsland would have to be re-financed within 18 months.

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