Comsource, the largest shareholder in Eircom, will oppose attempts by the company to retain proceeds from the sale of Eircell. Sources close to the Dutch-Swedish joint venture, which owns 35 per cent of Eircom, have said that that it will object to the move which was signalled by Mr Alfie Kane, the chief executive of Eircom, earlier this week. "We would have a problem with that," said the source.
Comsource would prefer to see all the €5.1 billion that Vodafone is expected to pay for the mobile business distributed to shareholders. Although it is the largest shareholder, it is not clear if Comsource could block the deal or dictate how the proceeds are distributed. Comsource is 60 per cent owned by KPN of the Netherlands and Telia of Sweden. Both companies have indicated that they no longer have any strategic reason to remain as investors in Eircom and that their shareholdings are for sale. KPN put plans to sell its 21 per cent stake in a secondary offering on hold when Eircom entered into talks with Vodafone in September.
If Eircell is sold for €5.1 billion, KPN's share of the proceeds would be almost as much as it could have realised from the secondary offering of its shares in Eircom earlier this year. Comsource will remain a 35 per cent shareholder in Eircom after the Eircell sale. Earlier discussions that were aimed at finding a mechanism to allow it exit entirely as part of the Vodafone deal were unsuccessful. Eircom may seek to negotiate a lock-up agreement with the two shareholders that would restrict them from selling their shares for a specific period after the restructuring. This would confer some stability on the company's share price after the sale of Eircell. The knowledge that KPN and Telia are looking to exit the company has acted as a significant brake on its share price for most of the past year. Comsource is not expected to agree to a lock-up unless it is linked to the planned disposal of the fixed-line business. This would leave only the rump of the multimedia businesses remaining in Eircom. A number of parties have expressed interest in the fixed line business of Eircom, but the only one to go public so far has been eIsland, a consortium led by businessman Mr Denis O'Brien.
It is understood that the Dutch and Swedish partners have not been impressed with the Eircom management's attempts to create shareholder value and doubt its ability to do so once the sale of Eircell is complete. "Management has not demonstrated any ability to create value - by default our strategy is to realise value and liquidity," said the source. Comsource acquired an initial 20 per cent stake in Eircom in 1996 as part of a strategic alliance arrangement. It exercised an option to increase its stake to 35 per cent in the run-up to the company's flotation in June last year. The effective price of its shares was €2.50 per share and it was facing significant paper losses prior to the emergence of the Vodafone bid.
