The Valentia consortium, chaired by Sir Anthony O'Reilly, is now in pole position in the bidding battle for Eircom. The Eircom board has entered a period of "exclusive negotiations" with this consortium - indicating that the board members believe it is the best offer on the table. They hope to be able to tie up a final offer to shareholders by June 25th. There is still room for another consortium to come in with a higher offer, but for the moment, Valentia is the one at the negotiating table.
The Eircom board had a difficult decision to make. The cash element of the final offer from Mr Denis O'Brien's eIsland consortium was higher than that from Valentia. But a guaranteed return from warrants, which Valentia is attaching to its offer, led the board to calculate the overall value of its offer as being just ahead of eIsland's.
The Valentia consortium already had an agreement from the Employee Share Option Trust, holding 14.9 per cent on behalf of employees. Eircom's two strategic shareholders - KPN of the Netherlands and Telia of Sweden - who together own 35 per cent, have also committed to Valentia, unless a substantially higher offer emerges. With the other large Eircom shareholders also likely to line up to sell their shares, it looks like Sir Anthony's consortium is set for victory.
Small shareholders will want to examine the full details of the offer, before deciding whether to support it (under Stock Exchange rules, 80 per cent of shareholders must accept an offer before the rest can be compelled to accept it). There is no doubt that the offer is higher than expected when the sale process started, which will please the Eircom board. They have succeeded in playing the two bidders off against each other to secure a good price, on current market valuations.
Those who bought in at the original flotation price will still be out of pocket. Whether telecommunications shares will ever again scale the heights they reached when Eircom was floated, is anyone's guess. Eircom shareholders will have some interest in these market trends, as they hold shares in Vodafone, following the sale of Eircell and will be offered warrants as part of the Valentia deal. These warrants will offer a minimum guaranteed cash return over a period and will also benefit shareholders if the company is sold or floated again on the stockmarket.
The presence of Sir Anthony O'Reilly on the winning consortium does raise some competition issues, which need to be addressed. It is not clear yet whether the deal is of sufficient scale to be vetted by the European Commission, or whether the Tanaiste, Ms Harney, will have to decide whether to refer it to the Competition Authority.
Sir Anthony is a major shareholder in, and chairman of, Independent News and Media, which itself has a 50 per cent stake in cable operator Chorus. As both Eircom and Chorus would plan to deliver both basic telephone services and multimedia content to subscribers through their infrastructure, there are clear issues to examine. The Office of the Director of Telecommunications Regulator also has a role here, as well as competition regulators. The latter should also examine how Eircom's ownership of Golden Pages will fit with Independent News and Media's ownership of the Independent Directory.
The decision in this area will be influenced by the extent of Sir Anthony's ownership of Eircom and the consortium's plans for its operations and management. The main shareholders in Eircom, if the deal goes through, will be venture capitalists, who will take a calculating approach to getting a commercial return. The Eircom staff, while getting an increased stake, are likely to see a drive to reduce job numbers. Meanwhile, it remains to be seen how the deal will affect the necessary investment in spreading advanced telecommunications services across the State. Details of Valentia's plans for Eircom are thus keenly awaited.