There is growing speculation that Dutch group KPN may be forced to cancel the planned sale of its 21 per cent stake in Eircom as a result of the continuing fall in the Eircom share price.
Eircom shares fell 12 cents to a new low of €2.86 yesterday and analysts believe that, given the continuing uncertainty over the 14 per cent stake held by Telia and the general weakness in telecom shares across Europe, KPN will do well to get much above €2.50 a share for its 21 per cent stake. The Eircom bonus issue is also likely to complicate the situation. "I think they're going to have to pull the secondary placing because if they go ahead, they're going to get little more than their money back - and that's just not on," said one analyst. The only thing that would provide some support for Eircom shares would be a formal undertaking by Telia to allow a "lockup" period for its 14 per cent stake.
One industry source said that Telia - which has already infuriated both Eircom and KPN with its surprise announcement that it was holding its shares - would have to give a commitment on a lock-up by the end of next week or else the KPN share sale would have to be postponed.
Since Eircom's results last month and Telia's statement that it was not selling its stake, the Eircom share price has fallen from €3.47 to yesterday's record low of €2.86. The fall to another low means that the 488,000 people who invested in Eircom's July 1999 flotation and held on to their shares are now sitting on a 27 per cent loss in their investment. Eircom floated at €3.90 and hit a high of €5.00 shortly afterwards. Since then, apart from some sporadic gains, the shares have steadily weakened.
There is little good news in the offing for the army of Eircom shareholders. Apart from the fiasco over the KPN/Telia holdings, the share price is being depressed by negative attitude towards the sector because of the expected impact of higher interest rates on spending plans for third-generation (3G) mobile phone licences and the development of these systems.
In addition, the one-for-25 bonus share issue on July 14th will put another 88 million Eircom shares in issue, adding to the negative technical position.
