THE EIRCOM employee group Esot, which owns 35 per cent of the company, could have to pay up to €10.3 million to buy additional shares in the business as a condition of the sale of the company to Singapore Technologies Telemedia (STT).

This emerges in an acquisition document circulated this week to the Esot's 12,500 members and seen by The Irish Times.

Under the terms of STT’s proposed A$225 million takeover of Eircom, the Singapore telco does not plan to own more than 50 per cent of Eircom.

The Esot will rollover its 35 per cent stake having received the green light from the Revenue Commissioners for the scheme to retain its tax-free status.

In the event that all of the existing Eircom shareholders take the cash offer on the table, convertible loan notes – for about 15 per cent of the company – will be issued that can be redeemed as shares in Emerald Communications Cayman (ECC), the new vehicle that will own Eircom.

A third-party investor will be sought for the loan notes but if none is found by mid 2011, the Esot will be obliged to buy them.

Eircom is 57.1 per cent owned by Sydney-based Eircom Holdings, with the Esot holding 35 per cent and wholesale investors attached to Babcock Brown owning 7.9 per cent.

Eircom Holdings and the wholesale investors have been offered cash for their stock, or shares or a mix of both.

Under the deal agreed with STT, the Esot will have the right to appoint two directors to the board of ECC as long as it owns more than 20 per cent.

This reduces to one if its shares falls below this threshold but is more than 10 per cent.

STT will nominate three board members and there will also be two independent directors. The Esot will also have the right to appoint the deputy chairman.

The board will be “assisted” by a six-member executive committee. STT will appoint three members with the Esot choosing two. Chief executive Paul Donovan will complete the committee. This is a new advisory body.

The Esot will have a veto on “substantial disposals”; transactions with parties related to STT; new issues of shares; and certain changes to ECC’s constitution.

The document states that “reasonable efforts will be made to obtain an IPO exit by 2014”. Any shares owned by the Esot post IPO would be have to be held for at least one year.

In the absence of an IPO, agreement has been reached to set up an internal market for the shares.

If a better offer is made for Eircom and recommended by Eircom Holdings, the Esot would have to pay STT €2.36 million as a “compensation fee”.

The Esot document states that more than €770 million has been distributed tax free to members.

The Esot still owns 36.1 million Vodafone shares, which are worth about €53 million.

STT’s offer has been recommended by the Esot’s board.

“STT is a strategic investor and is committed to providing consistent management and operational support to add value to its investments,” the document states.

STT’s bid will fall if the Esot rejects the bid, which seems unlikely. Esot members have until December 1st to cast their votes. Sydney-based Eircom Holdings will vote on December 15th.

The sale of Eircom is expected to close by January 4th if all approvals are received.

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