BABCOCK BROWN'S stewardship of Eircom is set to end in the coming months after the troubled Australian investment bank said it was reviewing its management arrangement with the listed satellite fund that has direct ownership of Eircom.
The termination of the bank's management arrangement with the Babcock Brown Capital (BCM) fund could lead to a sale of Eircom, according to sources close to the company. However, the financier who orchestrated the Australian takeover of Eircom only two years ago insisted yesterday that the company is not for sale at the moment.
"There are no current proposals under which BCM puts Eircom up for sale. It's not a market to be selling assets in," said Rob Topfer, a BCM director who is stepping down from his role as head of corporate finance in Babcock Brown.
BCM reiterated its commitment yesterday to maximise shareholder value from a fund that has lost more than 28 per cent of its value in the last year.
It was reported last week that Babcock Brown has sounded out putting Eircom back on the market, but this was denied at the time by bank.
Babcock Brown is closing its corporate finance unit as part of a sweeping reshuffle of its top management that follows a sustained and rapid deterioration in its share price, in light of questions about the viability of its business model.
Mr Topfer, who retains his seat on BCM's board in spite of his departure from the bank, acknowledged yesterday that the fund previously examined the possibility of selling Eircom, but insisted that was not on the agenda at present.
"In the current market you're very unlikely to realise the potential value in Eircom by putting it up for sale."
Mr Topfer said it was for BCM's independent directors to decide whether to terminate the 25-year contract under which Babcock Brown manages the fund and its assets, but indicated in clear terms that this was under active discussion. "Certainly it's possible that Babcock Brown will cease to be the manager of BCM," he said.
The bank would retain its 8 per cent stake in BCM in such a scenario "but won't have an involvement in the management". BCM would in turn be run by its own management if that happened, he added.
In a statement yesterday, BCM said it hoped to conclude discussions on "any internalisation of management" in time for its annual meeting in November.
However, any termination of the arrangement would be subject to BCM and the bank reaching agreement on a compensation package for the loss of management fee income from a contract that has 23 years to run. "Given that they earn substantial management fees, they're unlikely to give it up for free," Mr Topfer said.
BCM paid Aus$34 million (€19.93 million) in management fees to the bank last year, a sum calculated according to the value of the fund's net tangible assets.
The poor performance of the fund's share price, which lost 6.6 per cent yesterday and currently implies a market capitalisation on the business of only Aus$505.43 million (€296.1 million), meant that further share-based fees were not payable.
Eircom, whose debt amounts to some €3.46 billion, yesterday reported an 8 per cent rise to €698 million in earnings before interest tax depreciation amortisation and one-off items.
Mr Topfer said BCM continued to enjoy good relations with the Eircom employee share ownership trust, which owns 35 per cent of the telco, but acknowledged that Babcock Brown's troubles were unhelpful. "Are they happy to have the noise that surrounds Babcock Brown, my guess is that the answer to that is no."
