Inside the world of business
Eircom in need of a rescue remedy
WHILE EIRCOM technicians brave the elements to repair its creaking copper wire network, the top brass are busily trying to devise another sort of rescue plan.
Eircom is bleeding revenues, both in fixed-line and mobile. It’s a combination of the recession, and stiffer competition, particularly from cable operator UPC.
The company is losing 1,500 fixed-line customers a week while Meteor’s largely pre-pay customer base is paring back on spending as the recession bites.
Chief executive Paul Donovan has made it clear that there are no green shoots of recovery in sight. Its cost base is also too high and its workforce is too old.
There is also the small matter of a crippling €3 billion-plus debt and the fact that a next-generation network must be paid for.
Eircom is currently able to meet its repayment obligations but, with earnings under pressure, its financial covenant ratios are becoming stressed.
Eircom has only managed to keep ahead of the posse by vigorously cutting costs. This strategy won’t work forever.
Yesterday, Moody’s downgraded Eircom for the third time since May and suggested it could breach its covenants by next June.
The Irish State’s financial woes cannot be helpful for renegotiation of covenants or restructuring of debt.
What to do?
Donovan wants labour savings of €90 million over three years but this has yet to be agreed with its unions.
He could also sell some assets. Meteor could be on the blocks. This would be more palatable now given the launch of eMobile in September.
A covenant breach could be avoided by an injection of equity by its owners, Singapore-based STT and the employee Esot. STT took majority control in January. Since then, it has sat on its hands, giving no indication of its long-term strategy for Eircom.
This position is not tenable for much longer. Next week’s Budget will bring more woe for consumers. Donovan will have to act swiftly and decisively if Eircom is to keep control of its destiny.
Greencore merger has traders licking their lips
JUST OVER two weeks ago, Irish-listed food company Greencore announced it was to merge with British rival British Northern Foods, lifting the lid on one of the best-kept business secrets this year.
The initial reaction of the markets was good – almost too good in fact. While analysts welcomed the proposed merger as a win-win for both, the 25 per cent jump in Northern Foods’ share price had traders speculating on a counter-bid.
Last week’s move by British businessman Ranjit Boparan to increase his holding in Northern Foods has set the cat among the pigeons. While his holding is still only 6 per cent, his move is unsettling to say the least. Boparan Ventures already bought the British fish and chip shop chain Harry Ramsden’s earlier this year.
Other possible if unlikely counterbidders include outgoing Northern Foods chief executive Stefan Barden and Kerry Group.
Most analysts say a counter-bid is still very unlikely, given both boards have recommended the deal to shareholders and both companies’ share prices have climbed since the announcement.
Nonetheless, it ain’t over till it’s over.
NEXT WEEK:The week will be dominated by events on Tuesday. Minister for Finance Brian Lenihan will unveil his Budget for 2011, detailing €6 billion in cost savings and tax increases.
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