The European Commission will examine the three-year ban on any buyer of Eircom from entering the mobile market when deciding whether to clear its deal with Vodafone. The stipulation that Eircom cannot compete in mobile has been condemned by Mr Denis O'Brien, who is leading the eIsland consortium's bid for the fixed-line business.
Sources said yesterday such a clause was common practice and was only good business sense. However, the EU may reduce the time-frame if it wishes or attach other conditions to the €4.5 billion takeover. Mr O'Brien has said the ban is "corporate arrogance at its worst" and that Vodafone "had a nerve" to try to dictate who could enter the market. He believes the telecommunications regulator, Ms Etain Doyle, will have to examine it.
A spokeswoman for Ms Doyle confirmed that transferring the licence from Eircell to Vodafone would require the regulator's consent. "This is normally a straightforward case," she said.
She said the regulator's office had received no information to date on the deal. "The formal application for transfer has not been received and the director is not in a position to comment on any aspect of the transaction or transfer of the licence."
Sources said last night that Mr O'Brien could object to the three-year stipulation when the Commission considered the deal. EU consideration is expected to be a relatively short process, although some sources pointed to other deals, such as the Orange/Mannesmann merger, which were delayed by various conditions insisted upon by the EU. Vodafone and Eircom do not believe there will be any problems in pushing the deal through. However, Mr O'Brien is recognised as shrewd operator who knows his way around the Commission and European law.
Ironically, it was British Telecom's failure to bind Mr O'Brien to a non-compete clause when it was buying Esat which cleared the way for the telecoms entrepreneur to reenter the Irish market so quickly.
Sources said the matter could ultimately be examined by the Irish Competition Authority if the Commission referred the deal back to the Tanaiste, Ms Harney, who is Minister for Enterprise, Trade and Employment. She could refer it to the authority for consideration.
Meanwhile, Comsource will still have to seek Eircom board approval to sell any part of its 35 per cent stake. Comsource has agreed to lock-in its Eircom shareholding for 90 days after the Vodafone deal goes through. However, it will be able to sell its shares in an "off-market" transaction - a trade sale or a sale to a financial buyer.
The aim is to provide stability to the Eircom share price, but not to prevent any other buyer entering the market. Eircom chief executive Mr Alfie Kane said the issue of disposing of the 35 per cent stake would have to be resolved very soon.
Comsource, which comprises KPN and Telia who hold 21 per cent and 14 per cent respectively, indicated some time ago that it wanted to dispose of the shareholding. This has been one factor in depressing Eircom's share price.
The Eircell deal will not be finalised until early March. Sources on all sides yesterday categorically ruled out any possibility of Eircom engaging in a share buy-back of up to £700 million. That option, reported last week, was put forward as one alternative by Merrill Lynch, Eircom's advisers. Its effect would be to push up Eircom's share price.
An Eircom spokesman said last night that the share option plan for senior managers would be considered "in due course". The controversial scheme, which could see Mr Kane get up to £1 million in options, was to have been put in place after the company's interim results. However, it was overtaken by the Vodafone offer for Eircell.
The spokesman said Eircom still intended to go ahead with a scheme. He said no mechanism had been put in place where Mr Kane would receive a bonus for selling Eircell.
