Eircom board to hold crunch talks today

The board of Eircom is likely to hold crunch discussions today about the rival bids for the company and efforts to get the consortium headed by Sir Anthony O'Reilly to increase its offer.

Sir Anthony's Valentia consortium was last night identified by key sources as being in a stronger position than the eIsland consortium headed by Mr Denis O'Brien.

"Valentia does seem the more likely one at this stage," said one source.

Discussions between advisers acting for the various parties involved took place over the weekend but sources said they had not led to any significant breakthroughs.

Most parties involved are expecting a decision in the next 48 hours which will end this stage of the process.

One key source said he believed a deal would proceed at the price level currently being discussed and that today would be a "crunch day" in the process.

With approximately one cent of a difference between the rival bids, Eircom was anxious to get Valentia to close the difference so it would then have a bid which was equal to that of eIsland but also likely to win shareholder support.

There was no sign last night that the Employee Share Ownership Trust (ESOT), which controls 15 per cent of the company, had changed its view that it favoured the Valentia bid, despite it being lower than eIsland's.

The trust is understood to believe that the Valentia bid is a better one from the perspective of the long-term interests of the company.

The Valentia bid, at approximately #1.28 (£1.01), is about one cent lower than that made by eIsland. There have been indications that Mr O'Brien's consortium will take legal action if the Eircom board recommends acceptance of a bid lower than its bid.

The Eircom board is taking legal advice on the issue of its responsibility to get the best price for shareholders.

A key issue is the extent to which, while considering the size of the various bids on the table, it must also have regard to the likelihood or otherwise of any bid it recommends being voted through by shareholders. "The worst possible situation would be for the company to recommend one of the bidders and three months later have it fail," said one source.

A takeover requires support from 80 per cent of shareholders and so without ESOT, which controls 15 per cent, eIsland would need a level of support from remaining shareholders which many believe it would be unable to muster.

EIsland, for its part, believes it should be given the opportunity to convince shareholders to support it once it has submitted the highest bid. It is also possible that, in the event of the bid from eIsland being recommended by the board, the consortium could sway ESOT to row in behind it.

An increase in the Valentia bid so that it equalled that of eIsland would get the Eircom board out of its dilemma, though eIsland would be free to respond with a higher bid again.

Eircom has set deadlines for the process which have been breached but feels the continuation of the process is justified as the parties involved are upping their offers.

Twelve days ago the bids from the two consortiums were in the #1.15-to-#1.20 region. The increase in the bid price may bring some comfort to shareholders, though they are still far from recovering the money they invested when Eircom was first floated.