Dermot Desmond's investment vehicle, International Investments & Underwriting (IIU), is understood to be exploring the possibility of buying up to 29.9 per cent of the 35 cent stake in Eircom held by Dutch telecoms company KPN and its Swedish partner Telia. IIU is thought to be preparing to build the stake in Eircom which would block the move of the rival eIsland consortium to take over the company's non-mobile assets, including the fixed-line business. IIU and its partners are expected to clarify their position next week.
Market sources said last night that IIU would have to bid around €1.20 per share to bring KPN/Telia on board. It would value the bid at €750 million (£591 million), or the whole company at €2.6 billion. This compares to eIsland's €1.10 per share for the whole company, valuing the company at €2.4 billion.
It is understood that IIU does not want to become involved in a bidding war with eIsland, which is headed by Mr Denis O'Brien. Under takeover rules, any acquisition of a stake in excess of 29.9 per cent of Eircom would mean that IIU would have to make an offer for the whole company.
It is believed that IIU and its investors view eIsland's bid as too low - a view shared by several Eircom board members. Mr Desmond's investors could structure the bid with a view to encouraging other investors to reject the eIsland bid and hold onto their shares.
They may argue that now is not the right time to sell the whole company because telecoms stocks are in the doldrums.
However, IIU would seek board representation and management changes. At present, KPN/Telia have two board members. Sources said last night that buying the shareholding would not guarantee board representation. The current board would have to be lobbied for this.
An IIU spokesman could not be contacted for comment last night.
Well-placed sources said IIU was viewing Eircom as a strategic investment. It could be used to form the cornerstone of a larger international telecoms group.
That consortium is said to believe that Eircom management has failed in its attempts to build the company.
It is understood that the IIU consortium does not have a major telecoms player in its group yet. It currently includes IIU, Mr Pearse Flynn, formerly head of Canadian telecoms group Newbridge Networks, and more recently of French telecoms group Alcatel and some international investors.
By buying the KPN/Telia stake, IIU would be signalling to investors that it thought the eIsland bid was undervalued. However, it could also be seen as an opportunistic move.
IIU could make general statements to remaining shareholders, emphasising that it believed the company was undervalued and has potential going forward. However, it could not indicate that it wanted to buy the company in the medium term, as this would effectively put the company under offer. It is understood that, under take-over rules, if IIU did make an offer for the whole company in the short to medium term, it could not pay shareholders less than the amount paid to KPN/ Telia for their shares.
Corporate finance sources said the Eircom board could still recommend the eIsland bid if it felt this was in the best interests of shareholders. Nor would such a move by IIU necessarily provoke eIsland into abandoning its bid. It could still buy the remaining 70 per cent, but would require 80 per cent of the company in order to compulsorily acquire the remaining 20 per cent.
Any deal involving Mr Desmond or Mr O'Brien is separate from the Vodafone offer for Eircell.
