The biggest obstacle to the sale of Eircell to Vodafone has been removed following a £22 million (€28 million) agreement between the company and its unions on staff transfer terms.
The 1,200 Eircom staff moving to Vodafone are to get a new employee share scheme equivalent to the one they would enjoy if they stayed, worth £45,000 per person.
Eircom's unions had threatened to block the sale if members leaving Eircom were not compensated for giving up their entitlement to shares under the Employee Share Ownership Trust (ESOT) established when Eircom was floated in 1999. The threat was given considerable weight by Vodafone's insistence it would pull out of the deal if the workers refused to transfer.
The deal - which was agreed on Tuesday but has not been approved by the Eircom board or union trustees - clears the way for the sale. Shareholders, including the 480,000 small investors, can expect to receive a circular from Eircom in the coming weeks setting out the terms and timetable of the sale. Barring further problems, the deal should go through in early March following a shareholder meeting to approve it.
Attention is now expected to focus on the unhappy state of Vodafone's share price, which was close to a two-year low yesterday. The British group is paying for Eircell with its own shares and every fall in its share price reduces the value of the deal for Eircom shareholders.
Based on last night's closing price of 205-1/2p sterling, the deal was worth worth 155 cents per share to Eircom shareholders, compared to 184 cents per share when the deal was struck before Christmas. Eircom has the right to walk away from the deal without incurring penalties if the Vodafone price is below 220p sterling. If there is no improvement in the British group's share price in the coming weeks, Eircom chief executive Mr Alfie Kane and senior management will come under pressure to look at this option.
Eircom has conceded to the main demands of the Communications Workers' Union and the other unions in order to win their support for the sale. A new Employee Share Ownership Trust has been established for the staff moving to Vodafone. It will operate in such a way that the transferring staff will get shares - most likely in Vodafone rather than Eircom - to the same value as those they would get if they remained.
Under the terms of the employee share ownership programme agreed when Eircom floated, almost 15 per cent of the company was to be distributed to the staff over five years. The scheme is worth around £45,000 per worker.
More than half the 15 per cent has been allocated, but staff leaving Eircom - including those going to Vodafone - have to give up their right to the remaining shares, worth around £20,000 per worker.
The unions initially looked for a cash payment to compensate departing staff, while Eircom proposed changes to the existing ESOT. Under the agreed deal departing staff will retain Eircom shares already granted and will get Vodafone shares to the value of the shares they would have got had they remained.
Paying compensation would have cost Eircom more than £50 million, while the £22 million compromise reached on Tuesday will effectively cost the company nearer £18 million due to tax breaks. A key demand of the unions - that the existing ESOP is not in any way affected - has been acceded to. The net effect of this is that staff remaining with Eircom will get the shares that would have gone to the employees moving to Vodafone.