Babcock fund chief rules out disposal of Eircom

INVESTMENT FUND Babcock Brown Capital (BCM) has said it would be happy to retain ownership of Eircom for at least five years, …

INVESTMENT FUND Babcock Brown Capital (BCM) has said it would be happy to retain ownership of Eircom for at least five years, dismissing claims that the loss of investor confidence in its investment bank parent will hasten its disposal of the Irish telco.

In a phone interview with The Irish Times, BCM director Rob Topfer said the fund has none of the difficulties that have dragged the share price of its parent Babcock Brown to levels that can trigger a review of 2.8 billion Australian dollars (€1.7 billion) of its debt.

Stating that Babcock Brown's debt position had no impact on BCM or on Eircom's debt position, he said that Babcock Brown was in discussions with its 25-bank syndicate of lenders with a view to removing the review clause on the bank's debt.

"I don't think the position of BCM and therefore Eircom has changed actually since we bought it," said Mr Topfer, who orchestrated the €2.36 billion takeover in 2006. "Certainly there is no reason why BCM would sell its position in Eircom, other than if somebody offered an absolute fortune for the asset - then the directors would have to have a serious think about it."

READ MORE

He stressed that there was no approach for the company - "absolutely not" - and added that the directors of the business "at BCM level" had never engaged in any process to sell Eircom or any part of it. "Given the growth in the Meteor business and given the cash flow off the fixed line business and given the debt package we have, value is created at a very good IRR [internal rate of return]."

"It's just a great private equity deal. You could stay a shareholder for five years, just pay the debt off and have a great outcome," he said.

Mr Topfer was speaking after BCM, which owns 57 per cent of Eircom, published a valuation report by KPMG which put an equity value on the telco in a range of A$630-A$967 million when excluding its €4.26 billion in debt.

KPMG values BCM at large in a price-range between A$6.01 and A$7.69 per share.

Its report was published as part of a BCM share buyback programme, following its decision not to proceed with new investments.

Having already bought back 10 per cent of its stock on-market, the valuation exercise comes ahead of an off-market tender process for blocks of shares at the end of August.

"The mid-point of the valuation range represents a 92 per cent premium to the closing price of BCM on June 19th, 2008 of $3.56 and a 26 per cent premium to BCM's net assets per share as at December 31st, 2007, adjusted for the impact of the on-market buy-back program, of $5.45," BCM said.

Having lost significant ground when Babcock Brown's shares tumbled in the last 10 days, BCM shares gained 6.74 per cent on the Australian market to close last night at A$3.80.

This share price implies a market capitalisation of A$698.98 million on the fund, whose other asset is the Golden Pages directory in Israel.

"The board expects that the high end of the buy-back price range will be at a premium to the current market price but at a substantial discount to the low end of the independent expert valuation range," BCM said.

Mr Topfer said Eircom's business "seems to be travelling pretty well" notwithstanding difficulties in the Irish economy.

Asked about BCM's proposals to separate Eircom's network business from its retail offering, Mr Topfer said the possibility of going ahead without Government or regulatory approval was "off the table".

Mr Topfer said this was because of the limitations on the availability of debt because of the current credit crunch.

However, Mr Topfer said Eircom was willing to consider splitting the business if required by the Government to do so in return for State investment in Eircom's fibre network in rural areas deemed unviable for commercial investment.

He acknowledged that Minister for Communications Eamon Ryan has already turned down Eircom's proposal but said the company was willing to meet the Government again if asked.

"We want to create a stand-alone open-access network," Mr Topfer said.

Eircom would be obliged to take a defensive position if multiple networks went ahead, he said.

The company has adopted a stance of being "less confrontational" with the Government and the telecoms regulator, Mr Topfer said.

Arthur Beesley

Arthur Beesley

Arthur Beesley is Current Affairs Editor of The Irish Times