ESAT Digifone is set to buy O'Hagan Technology, a retail chain of mobile phone and computer equipment shops. The deal could be worth up to £4 million (€5 million).

The purchase marks another step in the battle between Eircell and Digifone for a stronger presence on the high street. Eircell, which has been an active buyer of mobile phone retailers, is currently finalising a deal to buy Talk to Me, a chain of shops with outlets in Dundalk, Co Louth and surrounding areas. O'Hagan Technology announced a £1 million investment plan last week and a rebranding of its trading name to O'Hagan Communications. It will also open 15 new outlets, creating 50 new jobs. The company currently has 10 stores and recently opened a flagship store on Dublin's Henry Street.

The deal to buy O'Hagan Technology has been approved by the Digifone board. However, it is understood the due diligence process, which has been taking place for several weeks, has not been completed.

It is also understood that an extraordinary general meeting of shareholders, convened for today at the request of Esat Telecom Holdings, irked Telenor, the other 49.5 per cent shareholder in Digifone. In correspondence seen by The Irish Times, legal representatives of the Norwegian group said it was wholly unnecessary to convene the meeting to ratify the board's decision. Tension between the two shareholders has existed for some time and differences between the sides also emerged at a High Court hearing earlier this year.

O'Hagan Technology is well-regarded within the industry and Digifone is said to be quite familiar with its operations. Digifone's chief executive Mr Barry Maloney declined to comment.

O'Hagan's main shareholder Mr Brendan O'Hagan said selling to Digifone was not under consideration "at the moment". He said the company's expansion was being funded by his own personal funds and funds he had raised and it hoped to open three more stores before Christmas.

However, sources within the industry said O'Hagan Technology had been exploring the possibility of a sale. The usual method of such a sale is through a combination of cash and an earn-out. Mobile phone operators, whose expertise is not in retailing, are generally content to leave the running of the retail operations they purchase to the existing owners, provided they reach certain targets.

Sources also said Digifone was finalising a deal to buy Eire Communications, a mobile phone retailer in Galway.

This is not Digifone's first foray into high street shops. Last year, it bought a controlling interest in Cellular World for £2 million.

Digifone's competitor Eircell has also been extremely active. It says it is currently completing a deal to buy out Person2Person, and previously bought Lets Talk Phones for around £4 million. More recently it bought Western Cellular, a small chain of shops in the west of Ireland.

Eircell currently has about 80 shops and its chief executive Mr Stephen Brewer said it hoped to increase this to around 120 by next March.

Apart from gaining more visibility, owning retailers gives the operators more control over how their products are sold as well as increasing sales. Mr Brewer has also argued that it brings the operator closer to the customer and that buying retailers is not a new phenomenon. "It happens in Europe," he said.

However, in some cases the retail operations have ended up selling only their new owner's products. This is because the rival operator has felt the new owner's products were being pushed harder. It is unclear whether this will happen with O'Hagan Technology.

Meanwhile, it is understood that Mr Maloney has exercised some of his options to buy shares in Digifone.

As part of his remuneration he is entitled to 2 per cent of the company, provided certain targets are met.