VODAFONE Airtouch is likely to pay in excess of €5 billion (£3.9 billion) for Eircell, although the final price is going to depend on movements in Vodafone shares between now and the time the takeover of the mobile phone company is completed - sometime between now and the end of the year.
Informed sources have told The Irish Times that once Eircell is demerged from Eircom, Vodafone will offer one of its own shares for every two Eircell shares. Vodafone shares closed 15 3/4p higher on £2.69 sterling (€4.63) yesterday and this would value Eircell at just more than €2.30 a share if the deal was going through at that price.
A price of €2.30 is equivalent to a historic enterprise value/ sales ratio of 9.8 times and a 15 per cent premium to the valuations currently being applied to smaller European mobile phone companies.
If it does finally emerge that Vodafone is willing to take over Eircell on an all-share one-fortwo basis, then it will come as good news for Eircom shareholders. A price of €2.30 a share (€5 billion) would be very much at the upper end of valuation estimates for Eircell.
Those current estimates are based on the valuations put on smaller European mobile phone companies such as Libertel in Holland, Mobistar in Belgium and Telestar in Portugal. Irish analysts have valued Eircell at €2.00 a share, with remaining fixed-line and Internet businesses valued at €1.90 a share.
A spokesman for Eircom would make no comment, but it is understood that negotiations with Vodafone on the price for Eircell are going on in tandem with talks with the company's lawyers and accountants on the structure of the deal, particularly the tax aspects as they apply to both Eircom and its shareholders.
While the value of any all-share deal will vary with price movements in the market and not least the fluctuations of the euro against sterling, a one-for-two swap at current values for Vodafone would represent exceptionally good news for Eircom shareholders, who are nursing heavy losses on their investment in Eircom. Eircom shares closed yesterday on €2.59, 33 per cent below the €3.90 flotation price.
ABN Amro analyst Ms Jemma Houlihan has suggested that the most likely structure for the disposal of Eircell is for Eircom to seek High Court approval for a scheme of arrangement which would allow Eircell to be formally demerged from Eircom. Each Eircom shareholder would then receive a pro rata holding in Eircell. Vodafone could then bid directly for Eircell, leaving shareholders with Vodafone shares and pro rata shares in the remaining Eircom.
The ABN Amro analyst has put a sum-of-the-parts valuation of €1.90 a share on the fixed line and Internet parts of the Eircom business.
If this does prove to be the case and Vodafone does end up paying the equivalent of €2.30 a share for Eircell, then it would mean that those thousands of investors who bought into the Eircom flotation might finally make a modest profit - possibly 30 cents a share - on their investment.
Given Vodafone's current market capitalisation of £156 billion sterling (€269 billion), Ms Houlihan believes that Eircell shareholders who get Vodafone shares are unlikely to be locked in for any lengthy period.
Market sources said that Vodafone might be prepared to pay a higher-than-expected price for Eircell because the Irish group, while small in European terms, will be an attractive add-on to Vodafone's British business due to the substantial volume of cross-channel mobile phone traffic.
