The Government has agreed the sale of 35 per cent of Telecom Eireann to a consortium made up of the Dutch and Swedish national phone companies, KPN Telia. The State will receive £183 million up front for 20 per cent of the company and a minimum of another £200 million over the next three years for an additional 15 per cent.
The Minister for Communications, Mr Lowry, said that £383 million is the minimum the Government will receive. The complex structure of the deal entitles the Government to additional payments if Telecom exceeds certain targets over the next three years. These payments will be in excess of £100 million, predicted Mr Lowry.
The money will be used to reduce some of Telecom's £600 million debt and to offset the cost to the State of funding the employees' pensions.
In addition, Telecom will be given access to the international telecommunications network, Unisource, which is part owned by its new partners. It will also benefit from the experience of its partners in all areas of its business under a range of alliance agreements.
Telecom's main union, the Communications Workers' Union, has welcomed the deal, which also allows for employees to purchase at least 5 per cent of the equity.
Mr David Begg, the general secretary of the CWU, said that the Dutch Swedish consortium was the partner most favoured by the union. He added that the union would seek to negotiate a larger share of the company for the employees.
However, the Opposition parties were highly critical. Fianna Fail said the deal did not reflect the true value of the company.
"The real value of Telecom, even factoring the arrival of competition, is up at the £2 billion mark. That price would make 20 per cent worth about £400 million", said Mr Seamus Brennan the Fianna Fail spokesman of Communications.
Mr Brennan added that the complex deal, with its performance related payments, meant there was a built in incentive for KPN Telia to restrict the growth in value of the company over the next three years.
However, the Government has claimed that the deal is structured to ensure that the Government shares fully in the expected improvement in the company's performance over the next three years.
The chief executive of Telecom, Mr Alfie Kane, said the alliance would allow it to prepare for the advent of full competition at the end of the decade. Eventually, Telecom would be in a position to expand internationally with its new partners, he predicted.
Mr Ben Verwaayen, a senior executive with KPN, said the two partners were committed to taking up the full 35 per cent. "We are not spending so much money for something we do not like", he commented.
