EIRCOM shares stalled at €3.30 yesterday after a week of frenetic activity at the troubled telecom company which saw its shares appreciate by almost 20 per cent.
The market has now taken into account both the almost certain sale of Eircell for €5.1 billion and the less certain disposal of the fixed line business to the e-Island consortium led by Mr Denis O'Brien for at least €2.25 billion. Mr O'Brien's consortium edged closer to full negotiation with Eircom yesterday. Consortium sources said they have now replied to a letter from Mr Ray MacSharry, the Eircom chairman, seeking further details of their offer, made on Thursday. EIsland is hopeful that serious negotiation can begin next week, but Eircom is understood to be still treating the approach as an "indicative proposal" and has referred the consortium to its advisers, Merrill Lynch.
Mr John Coolican of Merrion Capital predicted yesterday that e-Island would have to bid about €2.5 billion if it was to be successful. The underlying value of the shares was €2.80, assuming that Vodafone bids €5.1 billion and the residual multimedia business were worth around €800 million, he said.
Other analysts were less convinced that Mr O'Brien would or should go any higher than €2.25 billion.
"We do not subscribe to the belief that a potential €2.25 billion bid for the fixed line operations significantly undervalues this division," according to Mr Robert Hussey of NCB Stockbrokers. The price was at the lower end of the range compared to other European fixed-line operators and reflected the significant competitive threat that the fixed line business faced from cable operators, including NTL and Chorus which were entering the residential telephone market. The valuation also took into account "the lower productivity of the fixed line operations vis-a-vis European fixed line operations, the significant strength of the unions, the continuing pressure on profitability and the lack of another bidder", he said.
Commerzbank Securities said Mr O'Brien would have to bid as much as €3 billion for the fixed line business in order for Eircom to be worth more than €3.75 per share on break-up. Such an outcome was not likely to materialise, said the bank, predicting that the shares would settle at current levels until the deals were concluded.
