The share price of Eircom is continuing to hold up reasonably well after the decision of KPN/Telia, the Dutch-Swedish telecommunications alliance, to sell its 35 per cent stake. While it lost ground yesterday, this was at least partly due to poor sentiment towards the sector; however the share could be a volatile performer until the shareholding picture is sorted out. Eircom's chief executive, Mr Alfie Kane, maintains that the KPN/Telia move reflects the rapidly changing environment in the telecommunications business. But while the Swedish group Telia was expected to sell its 14 per cent share, the departure of the Dutch KPN group (who hold a 21 per cent stake) was unexpected. KPN had been expected to increase its shareholding after Telia sold its share. It now maintains that the sale is part of a review of its international strategy. But while KPN will make a very substantial profit from the sale, the whole episode will hardly inspire market confidence in Eircom.
The good news for the company's shareholders is that Eircom is now a takeover target and this may help to give some support to the share price. Equally, if a suitor does not emerge, or at least another international telcoms company prepared to buy the bulk of the shares, then the price could slip sharply. The hope must be that the continuing good health of the Irish economy and Eircom's dominant market share will attract interest from some of the key players in the global communications business in taking a sizeable stake in the Irish company. It is worth recalling that the primary purpose of the strategic alliance was to give Eircom the level of capital, expertise and international linkages necessary for future investment in new technologies. KPN/Telia may have gone but the need for a partner remains.
Many shareholders in the company, including some 574,000 members of the public who opted to purchase a stake last June, may be upset by this latest turn of events. In fairness, the prospectus for last June's floatation offered no guarantees that the alliance with KPN/Telia would continue beyond a six-month period. The departure of Telia was clearly signalled but most analysts formed the view that KPN were there for the long haul. All of this raises questions about KPN's intentions at the time of the flotation. Did it ever envisage retaining its stake beyond a six-month period? And was the public given all the relevant information before the flotation?
Telecom, now Eircom, was launched on the market at a time when elecommunications stocks were fashionable. At the time it was clear that much would hinge on the capacity of its management to grow the business. Shareholders were also given the traditional warning that shares can fall as well as rise. In truth, amid the expensive ballyhoo, not everyone bothered to listen. And now the difficult challenge for Eircom management is to find a new shareholder, but aim to keep control of the company. The developments of recent days at Eircom must have wider implications for the Government's programme of privatisation. The hope was that the successful flotation of a supposed blue-chip company like Eircom would whet the public's appetite for further State sell-offs. But the disappointing performance of Eircom's share price (after a short-lived early surge), and the continuing uncertainty, will scarcely encourage the share-buying habit - if and when shares in the likes of Aer Lingus, Aer Rianta and Coillte, are sold off.