Big Swiss cheese sees some holes in Eircom bid

The scene opens. The Swiss Federal Council - a seven member government cabinet - is meeting to discuss the future of state owned Swisscom. On the agenda is a proposal to mount a bid for Eircom.

First Minister: What do we know about this Eircom, and why does Swisscom want to buy it?

Second Minister (rolling his eyes): Why do they want to buy anything? They've too much money. The banks keep telling them they should buy something. It's called using your balance sheet more efficiently.

First Minister: Yeah, yeah. I presume the Irish Government has some sort of stake in Eircom. I quite like that Bertie Ahern chap, even if he is a socialist.

Second Minister: Nope. In fact they sold out years ago, just at the top of the telecoms boom. Made billions.

First Minister: And they didn't keep a stake? That's pretty odd for a country so dependent economically on its telecoms infrastructure.

Second Minister: Sure was, but they were mad for the cash.

First Minister: Anyway. So we are talking about a recently privatised state company. I presume we are looking at a pristine balance sheet that Swisscom can load up with debt and loads of fat to trim.

Second Minster: Actually somebody got there first. Tony O'Reilly, George Soros and a bunch of US venture capitalists took it private after the tech bubble burst, but not before Eircom had flogged off its mobile business to Vodafone.

First Minister: It doesn't have a mobile business?

Second Minister: Not exactly. But we'll come to that in a minute. Anyway, after O'Reilly and his chums made a bundle out of refinancing they floated it again. But they have had to pay pretty tasty dividends to get the punters on board.

First Minister: And the mobile business?

Second Minster: Oh yeah. They've agreed to buy the number three player in the market for something like €400 million. Had a rights issue, that sort of thing.

First Minister: Hang on. You are saying that Swisscom wants to buy a phone company that has been pillaged by US venture capitalists and is now spending huge amounts of money paying dividends when it could have been investing in networks. And to top it all, it's now paying a fortune for a small mobile phone company to replace a big one it sold a few years ago?

Second Minister: Yep. You've pretty much summed it up there boss. But I suppose that's why you are the First Minister.

First Minister: There must be something else. Is there a big broadband business?

Second Minister: They like to think there is and are always going on about it, but when you look at the league tables the Republic of Ireland is always at the bottom.

First Minister: Are we talking football now?

Second Minister: No. The broadband penetration league tables. Ireland is always near the bottom.

First Minister: Right. So what do they have going for them. Strong customer loyalty? Great brand?

Second Minister: Not really. Pretty much every household in the country lost money on the original flotation only to then watch O'Reilly and the rest make a fortune. There is not much love lost there. And then there is all the fighting!

First Minister: I thought that things were pretty much sorted in Northern Ireland.

Second Minister: They are. What I mean is that Eircom is always fighting with the regulator and refusing to give anyone else access to their networks. It drives the Government mental. They have already built some rival infrastructure and for sure they are going to let the power company get in on the act.

First Minister. So, on top of everything else, Swisscom wants to buy a business that is fighting with the Irish Government all the time?

Second Minister: Yes. And they would have to keep doing it, if there is any chance that the deal will pay for itself.

First Minister: Don't fancy that at all. That Ahern bloke will be bending my ear about phone bills every time I meet him.

Second Minister: Yeah. It will take more than a few bars of chocolate and a Cuckoo clock to keep him quiet.

First Minister: There is one thing I don't really understand. How did the Irish - what with their socialist prime minister and strong trade unions - let such an important asset get into this mess?

Second Minister: It's an amazing story really. They gave the workers a small stake before the first flotation - 5 per cent I believe. Anyway the unions embraced capitalism with gusto and by the time the company came back to market they had two board seats - including the deputy chairmanship - and a 21 per cent stake in the business. Been the kingmaker for the last few years and doing nicely.

First Minister: And they will go along with the sale to Swisscom?

Second Minister: As long as they get Swisscom shares in return.

First Minister: How many?

Second Minister: Not a lot. Maybe 5 per cent.

First Minister: Five per cent!

Second Minister: My God!!

First Minister: Get the Swisscom chairman on the phone. We have to stop them before it's to late.