The ESB and insurance group AIG were at an advanced stage of negotiations with British Telecom (BT) last night over payment for their 50 per cent stake in Ocean, the phone company. Negotiations recommenced this morning.

BT, which owns the other 50 per cent, was very keen to do a deal rather than face court action, according to informed sources.

Informed negotiators were placing a value of £320 million to £400 million on Ocean. Any settlement is likely to be within this range. On this basis, ESB's share would be valued under £120 million and AIG's under £80 million.

This would give the ESB a profit of around £100 million from its 18-month investment.

If a deal is agreed, the ESB would be out of the telecoms business, unless it decided to re-enter

through another telecoms company later.

Initial negotiations, however, concerned more than price. The ESB wanted to retain a presence with Ocean. But BT, by agreeing a deal with Norwegian State telecoms company Telenor, without Ocean, had severely limited its room for manoeuvre.

Had it decided to incorporate Ocean into the Esat group, BT would have had to give ESB and AIG a stake.

But if Telenor transfers its 49.5 per cent stake in Digifone for 33 per cent in the Esat group and then exercises an option to increase this to 49.9 per cent, BT could lose control of Esat Telecom.

That scenario would also have led to new negotiations with Telenor, which would have created its own difficulties.

So the negotiations eventually moved to a solely cash consideration, according to the sources.

Negotiations continued throughout the weekend. Negotiators were unable to reach agreement on Saturday and talks continued yesterday.

The ESB on Friday was given permission in the High Court to seek an interlocutory injunction today restraining BT from proceeding with the £1.9 billion take-over of Esat, the Republic's second largest telecoms operator.

It claims it has a joint venture agreement with BT which says BT can only operate in the Irish market through Ocean. Esat, it said, was in direct competition with Ocean.

The ESB is also seeking a mandatory injunction requiring BT to withdraw any offer made by itself, or its agents, for Esat and any Esat shares purchased are held by BT on constructive trust for ESB and ESB International Telecoms (ESBIT).

ESBIT, which owns 50 per cent of Ocean, is 60 per cent owned by ESB with AIG owning the remaining 40 per cent. So the ESB, in effect, controls 30 per cent of Ocean and AIG owns 20 per cent. ESB had invested £13.5 million in Ocean and was committed to investing a further £13 million.

Ocean has been in operation for only 18 months. Over that time it has gained more than 90,000 Internet customers and now claims about one-third of that market.

It has also been involved in the construction of the fibre optics western digital grid which is part of a £20 million project. It employs 300 people.