The Eircom board had little option but to recommend the latest offer for the company from Mr Denis O'Brien eIsland consortium. He eIsland offer of €1.36 per share is well above the last bid of €1.27 from the Valentia consortium, led by Sir Anthony O'Reilly. It is good news for small shareholders, who have seen the price bid up substantially. Whether the decision to sell Eircom has been in the best interests of the company's employees and customers - and of the economy - is another matter entirely.
Fortunately for small shareholders, the decision by eIsland to increase its bid means that they may now be able to benefit from the highest offer on the table - provided the deal can be finished. There is still some way to go before this happens, even if no fresh bid appears from Valentia. The attitude of the Employee Share Ownership (ESOT) - which holds 15 per cent of the shares on behalf of employees - will be vital. If the ESOT does not accept its bid, eIsland will find it difficult to get acceptances from 80 per cent of Eircom shareholders, the amount needed to successfully complete the bid.
The likely response from small shareholders is difficult to predict. Certainly the eIsland offer is fair one at current market levels and the board will be pleased at how it has played off the two bidders against each other. However shareholders who bought in at the flotation will still be out of pocket and not all may accept the offer.
Taking a wider view, it is important to realise that whichever consortium succeeds, Eircom is effectively being bought by international venture capitalists. Mr O'Brien - still facing difficult issues at the Mortiarty Tribunal - and Sir Anthony are fronting the two groups, but the main shareholders are major financiers and we do not yet know details of their plans. If eIsland now succeeds, it will seek to reduce costs, protect revenues and generate cash-flow to pay the borrowings run up in buying the company. This does not bode well for future investment in the telecommunications infrastructure. The bidding battle has been good for the short-term interests of shareholders, but the longer-term implications for the economy of the Eircom saga may not be so favourable.
editor@irish-times.com