Eircom’s filing of a prospectus with the Central Bank isn’t, of course, a cast-iron guarantee that it has settled upon a flotation. But it appears to be moving that way, especially if rumours of the beginning of a low key pre-marketing campaign by its advisers turn out to be correct.
Chief financial officer Richard Moat has committed it to making a decision on its future by year's end: to choose between flotation, a trade or private equity sale, or sitting on its hands.
A trade buyer appears to be off the agenda at this stage, and Bloomberg yesterday reported that a succession of private equity houses have also taken a rain check. Some now see a flotation as the most likely bet.
But what would be so bad about waiting for another year?
The noise from people with knowledge of its intentions is that Eircom isn't worried about coming to the market without a growth story to sell. Its revenues are still falling, although impressive cost-cutting has stabilised its earnings. Even without growth, it could spin a different yarn of a cash-generative, defensive, high-yielding stock.
Eircom is maintaining a decent position cash-wise: €199 million in the kitty at the end of June, €326 million before interest and financing costs.
If it were to knock €1 billion off its debts from a flotation, that would free up more cash to pay dividends, especially as its massive investment programme slows in coming years.
Investors are hungry for yield, so it could indeed be a plausible story to attract a certain type of investor. But only for so long. The company would need to show that growth is, at least, in the post in order to convince long-term investors that chunky dividends could be sustained well into the future.
If Eircom could even get close to Ireland’s GDP growth – forecast this year to be about 3 per cent – it would be enough to sell it as a nascent economic recovery play. In a year’s time, it might not be too far off that.
So what’s the hurry on a decision?
Is it because Eircom made so much noise marching everybody up to the top of the hill that it is concerned about how it would look to march them all back down again?
