Eircom's property portfolio may become a crucial defensive weapon if a full blooded takeover battle develops for the company, according to fund management sources. The former State company's extensive portfolio could be worth up to £190.6 million (#242 million) more than the value placed on it in Eircom's accounts. The portfolio has not been valued since April 1999 when Telecom Eireann - as it was known - was preparing to float on the stock markets.
Lisney Estate Agents put a value of #371.9 million on the portfolio but commercial property prices have increased by almost 30 per cent a year in the subsequent two years. In 1999, values grew by 29.4 per cent and in 2000 they increased by 27.7 per cent. The true value of the portfolio could be well in excess of #610 million on this basis. The #610 million valuation represents more than one quarter of the #2.2 billion offer made for Eircom's fixed-line business by eIsland - the consortium led by Mr Denis O'Brien - which was rebuffed by the Eircom board.
It is expected that the company will rely on the underlying value of its property portfolio to justify its position that a significantly higher bid would be needed before it could be recommended to shareholders. Eircom owns more than 1,140 properties throughout the Republic, the bulk of which are used to house its network and related facilities. The company inherited all of the real estate assets of the former Department of Post and Telegraphs which related to the telecommunications side of the business. According to the 1999 stock market prospectus, Eircom has the leasehold on more than 417,000 square feet of office space in Dublin, much of it located either on or adjacent to St Stephen's Green. A significant proportion of this office space would be surplus to the requirements on a slimmed down Eircom after the sale of its Eircell mobile division to Vodafone. In addition, the company has the freehold on 245,000 square feet of space in Dublin which houses network management centres and telephone exchanges. The company also has the freehold on a 126,000 sq ft building in Cork which houses its exchange. The various parties currently mulling takeover bids for Eircom's fixed-line business may sell off property to help repay the debt incurred to buy Eircom. However, Mr Denis O'Brien's eIsland or the Mr Dermot Desmond led IIU has yet to make a formal offer for the fixed-line business, which is worth #2.2 billion plus on the basis of an earlier offer from Mr O'Brien. EIsland has not indicated in any detail how it plans to fund its prospective bid and, at the moment, IIU has only sought information from Eircom. The extent to which a significant amount of cash could be realised through the quick sale of Eircom properties is unclear. Company sources point out that many of the more valuable sites in Dublin house telephone exchanges and other equipment which could not be easily moved. However, the company owns a large number of service depots around the State which could be developed. There is also the issue of facilities that are shared with Eircell, which is in the process of being demerged and sold to Vodafone. Protracted negotiation over the ownership of certain properties and other commercial arrangements are delaying completion of the deal.
The two companies had hoped to conclude the sale by the middle of this month but the deal is not now expected to go through until mid-April at the latest.
