Eircom, the besieged telecom group, has vowed to increase shareholder value, despite the thousands of abusive spears hurled at it last Wednesday. With brokers estimating falling earnings for the next two years, due to capital investments, how can it achieve this aspiration?
It plans to float off its Internet-related businesses in the first quarter of 2001. "We have now appointed advisers and firmed up our intentions" according to a spokesman.
The advisers are Merill Lynch and Goodbody. Ironically, Merill Lynch was one of the main advisers to the Eircom IPO last year and had urged an even higher issue price than the €3.90 (£3.07) opted for. Eircom is also considering the incorporation of its Golden Pages listing directory in the flotation. Golden Pages is estimated to have revenue of some £45 million and it could be safely bundled into the Internet businesses as there are plans to develop it into an online service. Eircom owns two Internet service providers, Eircom Net and Indigo. Analysts reckon these could have a value of €200 million to €300 million. This valuation, of course, would vary in line with the market mood.
Eircom should consider floating off more than the suggested 25 per cent. It would be an ideal opportunity to give some value back to the shareholders who have seen the share price dwindle by 33 per cent to €2.60. This could be effected by giving free shares, or shares at a substantial discount, to the existing shareholders. Considering the size of the shareholder base, such benefits would be small but shareholders need some positive, and tangible benefit, from the board. If Eircom just floats off the Internet side, it will merely improve the group's balance sheet with no direct benefit to the shareholders. Eircom has no immediate plans to float off Eircell, the mobile phone division. But such a flotation would enhance its value and it would also present an opportunity to give some back to the shareholders.
The vocal Eircom shareholders did win one small and important concession. Without their intervention, the company would not have stipulated the minimum price of the options at €3 per share, or the market price, whichever is the higher.
It could be argued that those attending the meeting were not representative. While some 3,500 people attended the meeting, only 2,982 of these were registered shareholders. And these represented only 0.6 per cent of the 478,000 registered shareholders. This is partly reflected in the voting pattern. Between 1.6 per cent and 3.1 per cent voted against resolutions one to 6; 25.6 per cent voted against resolution seven - the long-term incentive plan - but Esop (the trust owned by Eircom employees) accounted for 14.9 per cent of this.
And the Government voted against resolution seven in respect of its 1.1 per cent holding. Its role has been curious. The markets, of course, were mainly responsible for the share collapse, but unlike the board, the Government never got any flak for the collapsed share price. Yet it actively promoted the issue, weighted the allocation of the shares in favour of the small shareholders, pocketed £4.3 billion from the shareholders and appointed 10 of the 12 directors. No representative of the Minister for Public Enterprise, Ms O'Rourke, spoke at the meeting, yet she voted against the long-term incentive scheme with the populist explanation that she felt the "level of remuneration involved was inappropriate".
Talking about the price of the shares in July 1999 she said "I hope small investors will see a good return; we wanted to give good value and have as many as possible participating". Now there is the ludicrous suggestion that she might introduce legislation to give more power to the smaller shareholder. Any tinkering with the one-share-one-vote principle would cause chaos to commercial development and is a non-runner.
