A battle royal for control of the State's second-biggest telecom group, Esat Telecom, is now in prospect after Esat's chairman, Mr Denis O'Brien, rejected outright a €1.58 billion (£1.24 billion) hostile takeover bid from Newtel. Newtel recently emerged from the merger of Scandinavian telecom groups Telia and Telenor, and its bid comes just a day after it disclosed that it intends to sell its entire 14 per cent stake in Eircom at an estimated net profit of around £500 million.
The Esat chairman urged shareholders not to accept the Newtel offer, which, he said, "fundamentally undervalues the prospects for our business". He added that Esat intended to contest vigorously the Newtel bid, although market analysts believe that the $72 cash offer is clearly an opening salvo, with a higher bid likely to be made later during the takeover process.
Newtel director Mr Terje Thon, explaining why the group had put its offer directly to shareholders, said: "Esat CEO Denis O'Brien stated he was not interested in any offer in any circumstances.
"We have made all attempts to be friendly . . If they change their opinion, we would expect a call."
Mr Thon said securing a strong position in the expanding Irish market was part of the group's strategy to expand in mobile and Internet services as voice traffic moves across from fixed lines - even if it met with resistance.
Newtel has strongly defended its $72-per-share offer, emphasising that it is a 64 per cent premium over Esat's 90-day price average, 24 per cent over the price before abortive discussions with Mr O'Brien got under way on Tuesday and 11 per cent above the $65 close on the Nasdaq on Tuesday.
But clearly the reaction in the market anticipates a higher bid from Newtel or a rival bid for Esat from some third party. On the Nasdaq market in New York, where the bulk of Esat shares trade, the share soared as high as $80.62 and closed last night at $79.12, well above the $72 on offer from Newtel. At that price, Esat is valued at €1.68 billion (£1.32 billion).
Esat shares had risen by more than $7 on Tuesday night on the Nasdaq, although it is not clear whether this was due to a positive report on the company by one of its brokers, CSFB, or whether news of the confidential discussions between Newtel and Mr O'Brien had leaked out.
During these discussions, Newtel suggested that a takeover by the company would be the best way forward for Esat and would be in the interests of its shareholders.
It is understood that Mr O'Brien, who stands to make £180 million for his 14 per cent Esat stake at the Newtel offer price, rejected the takeover approach outright.
Relations between Mr O'Brien and Newtel have been fractious for some time as a result of a disagreement over the Esat Digifone shareholders' agreement, a disagreement that is due to find its way back to the High Court this morning. Esat and Newtel have equal 49.5 per cent stakes in Digifone, the State's second mobile phone operator. Digifone is thought to be the prime target of Newtel's bid.
Dublin analysts were reluctant to comment publicly on the bid, but two observers unconnected with either Esat or Newtel were united in the view that the $72 offer has little chance of success and that Newtel will have to sweeten the bid. They also agreed that talk of a sweetened bid of around $100 per share is pie in the sky and that a bid in the order of $84-85 per share might be enough to get Mr O'Brien's backing. There have been some suggestions that Mr O'Brien believes that over $100 per share is fair value for Esat. However, this is not supported by the valuation put on the shares by the market.
It is generally accepted that the bid cannot succeed without the support of Mr O'Brien and Esat's management. As well as Mr O'Brien's 14 per cent, the management has around 4 per cent, putting the combined stake very close to the 20 per cent that could block any compulsory acquisition of shares.
One analyst said Newtel's 49.5 per cent stake in Digifone is a complicating factor which might put off any competing bidder. At the very least, it would make any rival bidder price in a discount to reflect the Newtel presence in Digifone.
Apart from Mr O'Brien and the management group, the bulk of Esat shares are held by American investors. Five key investors - Fidelity, Investco, John Hancock, Henderson and Putnam - hold more than 32 per cent of the shares and they will have a major influence on the outcome of the bid.
Another analyst unconnected with either party agreed that the $72 offer from Newtel is too low and felt that a price of over $90 might be needed if the Scandinavian group is to succeed. This analyst agreed that the Newtel stake in Digifone makes a competing bid less likely, especially as Newtel has indicated that, even if it loses to a competing bid, it has no intention of selling its 49.5 per cent stake in Digifone.
