Tribunal investigates Digifone shareholdings

The Moriarty tribunal examines original shareholdings as part of itsinquiry into Esat Digifone and its successful bid for a mobile phone licencewrites Colm Keena

A major change in the shareholdings held by the various parties that owned Esat Digifone occurred in the month before it being awarded the second mobile phone licence.

The stake held by Mr Dermot Desmond's IIU Nominees Ltd in Esat Digifone was reduced from 25 per cent to 20 per cent within a month of IIU being first issued with Digifone shares.

According to a source, the first fallout between Esat Telecom and Telenor was over the size of the shareholding given to IIU and, following complaints from Telenor, the IIU shareholding was reduced. Spokesmen for the various parties involved would not comment.

If IIU was issued with a particular shareholding without Telenor's agreement, then it is not clear how this could have occurred.

Esat Digifone was incorporated in June 1995 to bid for the State's second mobile phone licence. It was told it had won the competition for the licence in October 1995 and was awarded the licence on May 16th, 1996.

At the time of the bid only two Digifone shares were in issue.They were held by Esat Telecom and Telenor. Documents in Companies Office show an issue of three million shares took place over April 12th and 13th, 1996, and gave IIU a 25 per cent holding. Denis O'Brien's Esat Telecom got 37.5 per cent and Norwegian company Telenor got the same shareholding.

On May 16th, 1996 - the date the licence was awarded - IIU transferred an equal number of Digifone shares to each of its fellow shareholders, reducing its shareholding to 20 per cent and increasing those of Esat Telecom and Telenor to 40 per cent each.

Spokesman for the parties involved would not say what was the consideration paid to IIU for the 5 per cent. The shares were £1 (€1.27) shares and three million were issued at par in April 1996. It is not known whether the shares transferred by IIU Nominees were given to the other two shareholders at par.

When Esat Digifone submitted its bid for the licence in August 1995 the shareholders were reported to be Telenor (40 per cent) and Esat Telecom (40 per cent), with the remainder to be held by "unnamed institutional investors". It was not until the period after the licence was awarded, in May 1996, that it became known that IIU Nominees was to hold 20 per cent of Digifone.

Companies Office documents show Mr Michael Walsh was appointed to the Digifone board on March 29th, 1996, and Mr Desmond on May 16th, 1996.

Mr Desmond has told the Moriarty tribunal the shares held by IIU Nominees were held for him. He said IIU agreed to fund Digifone's costs from bidding for the licence and was "acting" as a shareholder since August 1995. IIU made "over £100 million" from its involvement, Mr Desmond said.

In July 1997, Mr Leiv Svenning, then chief executive of Telenor Ireland, told the High Court during a dispute between Telenor and IIU Nominees that Telenor and Esat Telecom had entered into a joint-venture agreement in June 1995 to made the Digifone bid. Each company owned 50 per cent of Digifone but each agreed to transfer 10 per cent of their stake to IIU Nominees, he said. How the other 5 per cent originally given to IIU fits in with this scenario is not clear.

IIU Nominees sold 10 per cent of its Digifone shares for £5.8 million in August 1997. At the time it was reported that this meant it had made a profit of £4 million on its involvement. In January 1999 IIU Nominees sold a further 9 per cent of Digifone for $114 million (£77.5 million at the then exchange rate).

When BT sought to buy Digifone a year later IIU's 1 per cent became pivotal. Mr Desmond is reported to have received £25 million for it. These figures indicate he got £108.5 million for his Digifone shares. Mr Denis O'Brien, the main force behind Digifone and Esat Telecom, received £230 million from the sale of Esat Telecom to BT. At the time much of the value of Esat Telecom was from its ownership of 49.5 per cent of Esat Digifone.