Employee share owners will play pivotal role in any takeover

The Eircom Employees Share Ownership Plan (Esop), which owns just under 21 per cent of the company, will play a pivotal role in any takeover of the business. The shares are held on behalf of present and former employees and represent a blocking stake.

The Esop played a key role in the 2001 take-private of the company by the Valentia private equity consortium, when it extracted a 29.9 per cent stake in the privately held business in return for its 14.9 per cent stake in the quoted group. That stake has fallen to 20.6 per cent since the group returned to the market in 2004.

The Esop's influence arises from the difficulty any bidder faces in reaching the 80 per cent threshold required to take full control of the business without its support.

In addition, the Esop stake allows it to block certain types of corporate activity that require the approval of more than 80 per cent of shareholders.

Swisscom is not expected to start talks with the Esop, which is governed by trustees representing the company and staff, until it has formally declared its intention to make an offer.

The Esop is not likely to support any proposal that does not offer shares in Swisscom as an alternative to cash. The Esop would be required to pass the cash on directly to the beneficiaries who would then be liable for income tax. There would also be PRSI payments due. Under the legislation governing Esops they can hold shares in trust for the beneficiaries and disburse a certain amount tax free in any given year.

The Esop trustees are obliged to take independent advice on any offer and then form a view as to what is in the best interests of the beneficiaries as a whole, not just current employees. A source close to the trustees said yesterday that they could be expected to act like any other financial investor, subject to restrictions imposed on trustees, such as the avoidance of risk.

They are likely to pay particular attention to Swisscom's wider business plan and corporate governance structures.

The trustees are chaired by Jerome Barrett, national officer with the Communications Workers Union (CWU), which represents the bulk of the company's employees. The other trustees are Jimmy O'Conner, who is an Eircom employee and CWU member; Shay Cody, the deputy general secretary of the IMPACT trade union; Eugene Quinn, an Eircom employee; Cathal Magee, the managing director of Eircom Ireland; Peter Lynch, the finance director of Eircom; David Beattie, a partner in O'Donnell Sweeny solicitors; and John Conroy, the chief executive of Merrion Capital.