Business Opinion: A full bid for Eircom by Babcock & Brown now looks inevitable given the relentless stakebuilding by the Australian investment house, writes John McManus
The shape of Babcock's proposal will become clearer in due course, but there appears to be considerable currency to the notion that the deal will turn on Eircom being split in two, allowing further leverage of its already well encumbered assets.
Even at this stage, it's obvious that any move in this direction will have implications for Eircom's ability to invest in its network. This in turn has consequences for the wider economy and to use that rather quaint phrase "the national interest".
To be fair to Babcock & Brown they have not yet done more than drop a few broad hints about what they might or might not do. And should they proceed along such lines they will no doubt present a plausible argument for how Eircom can sustain its second leveraged buyout in five years, without investment and customers suffering unduly.
But that is no reason for us not to jump to conclusions and toy with the idea of how - should Babcock & Brown's advances be deemed contrary to the national interest - it could be stopped.
It is tempting to think that the first port of call in any such scenario would be the telecommunication's regulator, ComReg. However, they seem to have thrown in the towel already, indicating last week that they would be powerless to block any takeover that did not reduce competition in the market.
No doubt a suitably incentivised lawyer could cook up an argument as to how Babcock's acquisition of Eircom lessens competition. But one suspects that like a good many of ComReg's legal adventures it would come a cropper. In many ways it is no harm for ComReg to rule themselves out of the game at this early stage.
The next stop then is the board of the company itself. When Eircom returned to the market in 2005 after its first embrace by private equity, quite a lot of fuss was made about the appointment to the board of the great and the good of the Irish business community.
Joining the grandee of Irish business, Anthony O'Reilly, were Maurice Pratt, the chief executive of C&C, Pádraig O'Connor, the former head of NCB, Donal Roche, the outgoing managing partner of Matheson Ormsby Prentice, and clatter of others.
Again, one would like to think that these august figures would not condone any deal that left Eircom crippled with debt to the point that Ireland's communications infrastructure is continuing to lag the rest of Europe.
But, if the debacle that was Swisscom's failed bid last year is anything to go by, it's clear that the board thinks its overriding duty is the interest of Eircom shareholders. And, from that perspective, they should be biting the hand off the Australians who appear to be willing to pay up to €2.30 per share.
Another possible saviour is the Employee Share Ownership Trust which holds 21.5 per cent of the company and thus can thwart any takeover. However, here again history is our guide and the ESOT has shown itself more than happy to get into bed with private equity investors if the price is right. Con Scanlon, the architect of the ESOT's coup in 2001 - when it joined the Valentia consortium and took its stake from 15 per cent to near 30 per cent - remains deputy chairman of the company, although he has relinquished some of his other responsibilities. Crucially, he is the manager of the ESOT.
But at the same time, the unions whose members still make up much of the ESOT and nominate the trustees may well take a wider view. That said, if you were going to bet on who would win a battle for the hearts, minds and above all the wallets of the ESOT members. you would have to put your money on Scanlon.
So that leaves us with the Government, and more specifically the minister for communications Noel Dempsey. Of course, in the strict sense, he is pretty much powerless. The Government sold out of Eircom in 1999 and regulation of the market has been devolved to ComReg, whose stance is limp-wristed to say the least. Indeed, Dempsey has all the excuses he needs should he choose to wash his hands of the affair.
However, such technicalities do not seem to stand in the way of other European governments when commerce comes into conflict with the national interest (that phrase again). In fact, economic patriotism is enjoying something of purple patch at present.
The French government have made it abundantly clear to Mittal Steel, controlled by Indian barn Lakshmi Mittal, that they don't want him buying Arcelor, the Luxembourg-based steel group with operations in France. Luxembourg for its part is proposing new merger legislation to scupper the deal.
Further south in Spain, the Spanish government is being equally difficult about the attempts by Germany's E.ON to buy Endesa the countries largest electricity group. E.ON's approach has trumped a bid from Spain's Gas Natural which had the tacit support of the Spanish Government. Rather than worry about what they can and can't do, the Spaniards are planning to grant their energy regulator new powers to block the deal.
Eventually Luxembourg, France and Spain will run foul of the European Commission - and indeed a certain Charles McCreevy the Internal Market Commissioner - but in the meantime they will have achieved their objective, securing the national interest. Over to you Mr Dempsey.
jmcmanus@irish-times.ie
