Tribunal to hear how €3.5m Esat deal was made

Norwegiancompany Telenor is expected to tell the Moriarty Tribunal that straightforward commercial considerations led to it buying Esat Digifone shares from Mr Dermot Desmond's IIU Nominees Ltd in May 1996.

IIU got €3.49 million for 5 per cent of Digifone just one month after it bought the shareholding for €190,500. It retained a further 20 per cent of the company.

Telenor is expected to tell the tribunal that when Esat Digifone was looking for Irish institutional backers at around the time it was making its bid for the State's second mobile phone licence, Mr Desmond said his company would back the venture only if it were given a 25 per cent stake.

At the time Digifone was finding it difficult to locate backers, according to one source. Mr Desmond and IIU Nominees became involved through Mr Denis O'Brien's Esat Telecom, Telenor's partner in the bid.

IIU Nominees bought 25 per cent of the initial share capital of Digifone in April 1996 but Mr Desmond has told the tribunal IIU was an effective shareholder in Digifone since the summer of 1995.

Some time after being issued with the shares, Mr Desmond said IIU would be prepared to sell 5 per cent, according to a source. Telenor was interested in buying the shares but Esat Telecom wanted to retain a shareholding equal to that held by its Norwegian partner.

Commercial negotiations led to each of the partners buying 2.5 per cent of Digifone and each paying €1.75 million to IIU Nominees for the shares. This left the three companies with a 40:40:20 split of the shares, the breakdown which had been outlined in the original bid for the licence.

Mr Desmond's IIU Nominees was issued with the shares so it would place them. Mr Desmond joined the Digifone board on May 16th, 1996, the date the licence was awarded and the date IIU sold 5 per cent of Digifone for £2.75 million (€3.5 million).

In the Digifone directors' report for that year, no personal interest in the company on the date he took up the appointment was declared.

By December 31st, 1996, the shares held by IIU had been placed with Mr Desmond while the remaining were held in the name of IIU. The Esat Digifone register of directors' share interests was examined by The Irish Times. It does not mention Mr Desmond. The Register of Members and Share Ledger, which records dealings in the company's shares, outlines the amounts secured by IIU Nominees for its Digifone shares.

It shows 150,000 shares being sold by IIU on May 16th, 1996, for €3.49 million (£2.75 million); 300,000 shares being sold on April 18th, 1997 for €7.7 million (£6.066 million); 6.75 million shares being sold on April 24th, 1999, for €120.96 million ($113.9 million); and 750,000 shares being transferred on July 9th, 2001, for a nominal figure of $1, before being subsequently sold for €11.8 million.

There were share issues in December 1997 and December 1998 during which IIU bought 5.2 million £1 shares at par. The company also bought 750,000 £1 shares at par during the original raising of share capital in April 1996.

On the basis of the above, the IIU investment was €7.56 million and its return was €143.95 million. However, reports at the time suggested Mr Desmond got €31.75 million for his final shareholding in Digifone when he sold it to BT last year, which would mean the IIU investment netted a return of €163.95 million.

The awarding of a licence to Esat Digifone is currently being investigated in private by the tribunal. Spokesmen for Mr Desmond, Mr O'Brien and Telenor said they would not be making any comment.