The Eircom board is likely to reject the #2.25 billion (£1.77 billion) bid for its fixed line telecoms business from a consortium headed by millionaire businessman Mr Denis O'Brien. A higher bid is now expected, even though Mr O'Brien has stated the current bid fully values the business.
Eircom has sought clarification of the offer from e-Island, the consortium formed by Mr O'Brien and his backers. Sources close to Eircom insisted that #2.25 billion - equivalent to #1 per Eircom share - was too low.
Sources believe that if Mr O'Brien is prepared to go above #2.5 billion, the Eircom board will have to give serious consideration to the bid, which Mr O'Brien has described as "friendly".
Mr Con Scanlon, the general secretary of the Communication Workers' Union, made it clear last night that Mr O'Brien would have his support only if he was prepared to give staff a stake in the company after any takeover.
The former Esat Telecom chairman refused to be drawn on the issue yesterday, saying he first had to discuss the matter with Eircom. Mr Scanlon is on the board of the Employee Share Ownership Plan trust, which has a 15 per cent stake in Eircom. He said the trust would be seeking a 15 per cent stake in Eircom Ireland - the fixed line business - if it was sold. He added that the wishes of the trust would have to be taken into account if Mr O'Brien was sincere when he said the bid was friendly.
Mr O'Brien, who made £300 million (#381 million) from the British Telecom takeover of Esat earlier this year, yesterday defended the size of his bid on the basis that companies such as British Telecom and France Telecom were trading on lower earnings multiples than his group's bid for Eircom's fixed line business.
"By that analogy, I don't think we're offering too little. It's a very generous offer. Our offer and the mooted Vodafone offer for Eircell are already well ahead of the Eircom share price. The market believes that this offer is full."
Eircom shares were eight cents higher yesterday on #3.23.
One analyst, Mr James McCafferty of SG Securities, said: "As a first crack it seems quite a generous bid and it is cash, which is quite rare for the telecoms sector." He added, however, that the O'Brien consortium would probably have to go higher.
Mr O'Brien, while he repeatedly said that his consortium's offer is full and fair, has not said categorically that he will withdraw if the #2.25 billion offer is rejected by the Eircom board. But in a message clearly directed at Eircom's disgruntled shareholders, he said that the fixed-line business was not viable as a stand-alone entity. He warned: "It is not in the interests of Eircom staff and shareholders for the board to reject this offer."
The businessman has declined to identify his backers, other than to say Chase, the US bank, is the main source of funds. He and the other members of eIsland had put up a significant but unspecified amount and were the only Irish investors. Uiginn, Ms Lucy Gaffney, Mr Massimo Prelz Oltramonti and Mr Denis O'Brien snr are also in the consortium. Meanwhile, it is understood that Vodafone's takeover bid for Eircom's mobile phone arm, Eircell, could be finalised within two weeks and possibly sooner. If this is the case, the takeover of Eircell could be completed before the end of the year.
Vodafone has offered one of its own shares for every two Eircell shares, once Eircell is demerged from the parent company. Vodafone's current share price and the current euro/sterling exchange rate puts a value of #2.34 on Eircell shares, although that value could rise if the euro continues to weaken against sterling.
