Deja vu all over again as Eir’s new French owners hang up on 750 workers

Richard Moat, who stepped down this week as chief executive of Eir, said five years' ago (then as chief financial officer) that he hoped a programme then under way to cut 2,000 jobs "would be the final one" for the group. He should have known better.

Three days after his departure on Monday, as a consortium led by French billionaire Xavier Niel took over the ship, the former telecoms monopoly unveiled plans to axe 750 roles to "create a leaner, more agile organisation". The scheme is likely to cost in excess of €100 million, based on previous company experience.

It’s an all-too-familiar dialling tone at the company.

The company formerly known as Eircom has slashed its headcount from a peak of 13,000 around the time of its 1999 stock market flotation to about 3,225 at the end of last year. Each big redundancy round usually came soon after one of the group's six previous changes of ownership in the past two decades – often as a new set of private equity owners sought to cut costs as they loaded up the company's debt burden to finance the extraction of dividends.

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The last major programme was signalled in late 2012, shortly after a group of its creditors, mainly distressed debt investment firms and hedge funds, took control of the company in Ireland’s largest ever examinership case.

Seriously underinvested

Cost-cutting over the past five years has delivered more than €148 million of annual net savings , according to company reports.

The creditors-turned-investors in 2012 knew that taking money off the table immediately wasn’t an option. They had to look at the group’s seriously underinvested infrastructure to turn around flagging revenues and stave off a demise to zero in an intensely competitive industry.

Eir has pumped about €500 million in its next generation fibre network over the past five years and returned to annual sales growth in 2015 following years of decline, helped by a push on its then-fledgling quad-play offering, including broadband, landline, mobile and television products.

However, underlying revenues have begun drop again in recent quarters, even as the group has continued to deliver earnings growth.

One of the big challenges facing the new owners (Niels' NJJ investment vehicle and his Paris-listed phone company Iliad now in control of almost 65 per cent of Eir) is rebooting sales. But it's clear that cost control will be relied on in the meantime to underpin earnings growth.

Voluntary redundancy

After all, Niel's chief executive at Iliad, Maxime Lombardini, signalled to investors last month that Eir may start to pay a dividend as soon as next year to its new owners. Shares in Iliad, which has an option to increase its 31.6 per cent Eir stake to almost 59 per cent in 2024, have gained as much as 5 per cent since the job cuts plan was first reported on The Irish Times website on Thursday.

Meanwhile, staff opting for the voluntary redundancy programme are entering an entirely different market than during the scheme announced in 2012. The unemployment rate has fallen to 6.1 per cent from a crisis-era peak of over 15 per cent during the period.

Sources have said 1,100 of Eir’s staff, mainly field workers involved in the fibre network rollout, are exempt from the current programme.

But there’s little doubt that the new owners will be back again to target this current protected group, as maintenance of the lines will require far less labour.

Rusal investors trapped in Dublin vehicle

Spare a thought for investors in $1.6 billion (€1.3 billion) of bonds issued by sanction-hit Russian aluminium giant Rusal’s Dublin-based funding vehicle.

The Irish Times reported earlier this week how the value of these bonds had slumped in the wake of the United States slapping sanctions on April 6th on Rusal and its owner, Oleg Depripaska, as Washington targeted a slew of Russian officials, politicians, tycoons and companies alleged to have close ties with president Vladimar Putin.

Ireland has emerged in the past decade as the jurisdiction of choice for Russian firms to set up tax-efficient special purpose vehicles (SPVs) to finance group activities either via inter-company loans or by raising dollar-denominated eurobonds.

Now it appears that the investors in the bonds issued by Rusal Capital in Ireland are trapped. Bloomberg has reported that the bondholders have until May 7th to sell their bonds. Otherwise, they risk having their investments frozen by US authorities.

Blocking transactions

The problem is that the two main companies that would ordinarily facilitate the trades – Euroclear and Clearstream – are blocking the transactions from being cleared, as the Irish special purpose vehicle isn't explicitly authorised by the US Treasury's Office of Foreign Assets Control.

Meanwhile, the 450 workers at Rusal's Aughnish Alumina factory in Limerick, which is one of Europe's main alumina suppliers, are continuing to operate at full throttle for the moment at least – but under a plume of uncertainty.