Talks between British Telecom and Telenor on the future of Esat Digifone continued throughout yesterday without reaching agreement. And although it is understood that Telenor had set a deadline of lunchtime yesterday for BT to come up with an acceptable solution to the dispute between the two parties, it is believed that the Norwegian group extended this deadline and talks will resume today.
Meanwhile, it has emerged that employees of Digifone are angry that they are not to benefit in any way from the takeover of Esat by BT. Unlike 80 per cent of Esat employees, who stand to make sizeable sums by exercising share options and then selling the shares to BT for $100 each, Digifone's 700 staff had no such share options.
One Digifone employee said that the staff were angry as they felt that it was the growth and strength of Digifone - 49.5 per cent owned by Esat - which had been the engine for Esat's growth. "We are going to get nothing out of this despite the work we have put in and people are feeling pretty demoralised as a result. BT is going to have a morale problem to sort out unless it does something."
It is generally accepted that Digifone accounts for about two-thirds of the value of Esat and is likely to be one of the main growth areas in the next few years. Esat chairman Mr Denis O'Brien has set a target of achieving 50 per cent of the mobile phone market within the next three years. Digifone currently has 42 per cent - but will probably need a fully motivated workforce if these aggressive targets are to be met.
The ownership dispute between BT and Telenor - who are partners in telecom operations in Germany, Switzerland and Sweden - centres on BT's contention that it has acquired Mr Dermot Desmond's 1 per cent shareholding in Digifone, a move that will give BT a controlling 50.5 per cent stake of Digifone when its $2.5 billion takeover of Esat Telecom is completed. Currently, Esat and Telenor are equal 49.5 per cent shareholders in Digifone.
BT clearly believes that it was perfectly entitled to buy Mr Desmond's pivotal 1 per cent stake in Digifone for what informed sources said was in excess of £25 million. For its part, Telenor has long claimed that if Mr Desmond sells his stake in Digifone then he is required to offer it equally to the other shareholders, just as the 9 per cent sold by Mr Desmond last year for $114 million was sold equally to Esat and Telenor.
Market sources believe that BT has bypassed the shareholders' agreement and its pre-emption provisions by buying Mr Desmond's stake in Digifone before it assumes control of Esat. Sources say Mr Desmond had the right to sell his 1 per cent stake in Digifone to anybody he liked as long as the buyer, in this case BT, was not already involved in the Irish mobile phone market. Telenor, however, is understood to contest hotly this interpretation of the shareholders' agreement. Informed sources say that the Norwegians are prepared to take the dispute to the High Court unless it can extract an acceptable compromise from BT.
While BT has made conciliatory noises towards Telenor and said that it would like it to remain a shareholder in Digifone, informed sources say that the Norwegians will not be willing to remain in Digifone as a minority shareholder liable to be outvoted by a BT-controlled board.
They added that while both BT and Telenor are keen to maintain cordial relationships - given their common interests in Germany, Sweden and Switzerland - Telenor has been infuriated at the way a partner undermined its position in the Esat bidding.
Whether relationships have been disturbed to the extent that Telenor will demand to be bought out of Digifone remains to be seen, but buying Telenor's 49.5 per cent of Digifone would probably cost BT well in excess of $1 billion on top of the $2.5 billion it is paying Esat shareholders, the $400 million Esat debt it is assuming and the $50 million-plus fees that BT and Esat have to pay to their combined army of investment bankers, corporate financiers, lawyers and assorted advisers.
