Eircom's Employee Share Ownership Trust (Esot) will end up with a 35 per cent stake in the privatised company once the transaction announced yesterday is complete.
The Esot is a co-offeror along with Babcock & Brown and will invest €307.6 million in the equity of the vehicle being used for the bid, BCM Ireland Holdings Ltd (BCMIH).
The money will come from the proceeds of the sale of its 21.4 per cent stake in Eircom to BCMIH. In total the Esot will get €654.4 million for the shares and preference shares it currently holds in Eircom. It will get another €12 million in respect of dividend payments on its Eircom shares.
Some €298.7 million of the proceeds will be in the form of preference shares in BCMIH, which can be converted into cash, while the balance will be in cash. After re-investing €307.6 million in BCMIH, the Esot will have net cash from the transaction of €60 million.
Under the terms of the Esot, which was established 1999, it must disburse its assets to members by 2014. Its 14,500 members are past and present employees of the company, of which around 6,200 still work at the company. The Esot's participation in the takeover has to be approved by a ballot of members.
Under the Esot legislation only €12,650 per member per year can distributed tax-free and the Esot said yesterday that it was "targeting the distribution of assets" by 2014. Sources close to the Esot said yesterday that the deal gave it sufficient cash and preference shares to enable it make the maximum tax-free payout to beneficiaries for the next three years.
After that date the Esot will need to find a mechanism to realise the value of its 35 per cent in Eircom. The initial offer document published yesterday does not outline an exit mechanism for the Esot. However, Esot sources said there was agreement with Babcock & Brown that the Esot would be able to convert its unquoted Eircom shares into Babcock & Brown shares, which are quoted on the Australian stock market.
The source said it was more likely that there would be a "liquidity event" such as a trade sale or initial public offering of the business. The source said this did not necessarily conflict with Babcock & Brown's assertion that it is a long-term investor.
The sources said the Esot did not oppose the mooted splitting of the company into its retail and infrastructure businesses, although Babcock & Brown indicated yesterday that this was off the table for the immediate future.
According to the document released yesterday, the general manager of the Esot Con Scanlon will remain as deputy chairman of the company. "The Esot will have a significantly enhanced ability to influence the business following the transaction," according to the document.
"BCMIH recognises that the Esot's management team and its beneficaries...will be providing valuable consideration over and above the cash invested by the Esot," it said.
