One of the first tests of just how affable Mr Denis O'Brien's "friendly offer" for the fixed line business of Eircom will be his dealings with the employee trust that owns 15 per cent of the parent company.
A firm believer in non-unionised labour, the former Esat Telecom chairman refused to be drawn yesterday on whether he would be happy for the staff to own 15 per cent of the business under his control.
It was a question that could not be answered until he had spoken to Eircom's management, he said. When he talks to them he will be told - if he does not know already - that because Eircom Ireland is a division of Eircom plc the Employee Share Ownership Plan Trustee has no direct interest in it and is not automatically entitled to a prorata shareholding if it is split off. This means the trust will get no shares unless he agrees.
Mr Con Scanlon, the Communications Workers Union general secretary has already set out his member's stall. Mr Scanlon doubles as member of the ESOP Trustee board, which is dominated by the Eircom unions, and speaks for it as well. "We [the ESOP Trustee] are a substantial shareholder in the company and we intend to remain one," he said yesterday. "Denis says it is a friendly offer. It is unlikely that the wishes of a major shareholder could be ignored in that case." On the more general question of Mr O'Brien's lack of faith in traditional industrial relations machinery, Mr Scanlon is more sanguine.
"From a union point of view as long as we have agreements in place we can negotiate on behalf of our members. We have to do business with someone be it Denis O'Brien or whoever. We have to be assured about certain things," he said. The unions may even find themselves pleasantly surprised to be dealing with a management with a clear agenda. "Unions like management with a vision. Then at least they can have a row," one senior industrial relations expert said. In any case, Mr O'Brien is expected to leave the task of dealing with the unions to Mr Leslie Buckley, another member of the e-Island consortium who has a considerable amount of expertise in this area. Mr Buckley has been involved in restructuring several state companies including Aer Lingus and Irish Steel.
Mr O'Brien is more likely to devote his attention to winning over the other shareholders and the Eircom board. Yesterday he pronounced himself pleased at the speed at which Mr Ray MacSharry, the Eircom chairman, had responded to e-Island's letter outlining their offer. Both men know each other and sit on the Court of the Bank of Ireland.
Mr O'Brien has also started courting the two other big shareholders, KPN, the Dutch phone company, and its Swedish counterpart, Telia. KPN owns 21 per cent of Eircom while Telia has an 11 per cent stake.
His pitch is deceptively simple. The breakup of Eircom through the impending sale of Eircell - the mobile business - to Vodafone will leave the fixed line business an unloved orphan that needs a new home. The breakup will also leave KPN, Telia and more than 450,000 small shareholders holding a stake in a company that will find little favour in the market. In addition they will still be nursing losses on their original #3.90 a share investment.
The sale of the business to eIsland would solve these problems in one fell swoop, Mr O'Brien contests. When the Vodafone offer, worth about #2.34 a share, is taken together with his offer of the equivalent of #1 a share you are not far from the #3.90 flotation price that most investors paid. The flotation of the remaining multimedia business, which is planned for early next year, could make up the difference. "Our offer solves a problem and is a good business opportunity for the consortium," he said. The proposition may be attractive to the Eircom board, particularly because it is under public pressure from small shareholders and the more private scrutiny of institutional investors.
Before they can accept his offer however, the board must satisfy itself Mr O'Brien and his partners have a viable strategy that is in the company's best interests.
This may be a harder sell for the ESOP board. In their previous incarnation as the board of Esat Telecom, Mr O'Brien and friends were scathing in their criticism of Eircom, or Telecom Eireann as it was then called. The man who habitually referred to Telecom as a dominant player that abused its position has found a new phrase to his vocabulary to describe the company - Eircom is now a "reduced incumbent".
"I have a lot of respect for what they [the Eircom management] have done in a difficult environment," he said yesterday with no trace of irony.
Eircom Ireland has 1.6 million phone lines of which 1.1 million are residential. Its turnover is #1.6 billion and it reported earnings of #660 million before interest, tax and depreciation last year.
Depreciation is about #340 million, according to the most recent figures, and the business is virtually debt free, indicating pre-tax profits of more than #200 million. The biggest single expense is the 9,500 staff, which cost the equivalent of 23 per cent of turnover. The new owners will have to sweat the assets of Eircom if they are to repay their #2 billion debt and find the #400 million necessary to invest in the network to meet competition from cable companies NTL and Chorus.
The wages bill is the obvious target and Mr O'Brien refused to be drawn on the subject yesterday. "The company already has a transformation plan. We have to see if that plan should be continued or revised," he said.
To date, Mr O'Brien's consortium and Chase, the US bank that is backing them, have committed #2.25 billion but that is set to rise, not least because despite his protestation, Mr O'Brien will have to increase his bid if he is to succeed.
Based on their record at Esat Telecom the consortium will tap the US debt markets for funds where Mr O'Brien is well-known and regarded. This will almost inevitably lead to a re-flotation of the company down the road to pay the debts.
On a very basic level, Mr O'Brien is buying a well-run and profitable company at the very bottom of the cycle for telecoms. Given their intimate knowledge of the biggest competitor - Esat Telecom - Mr O'Brien and his team are arguably the best qualified people to run it.
Although the company will no doubt surrender a portion of its 80 per cent share of the fixed line market over the next few years it will still be an immensely valuable business. At is very simplest, the e-Island consortium has sold one phone company - Esat Telecom - at the top of the market and are now buying a bigger and better one for less at the bottom of the market.
The real question is perhaps why Mr O'Brien, now a multimillionaire, wants to do it. Yesterday, he said he never wanted to sell Esat and "after 42 years of life there are still a few years left on the clock".
This perhaps makes more sense than the assertion that he is offering "an Irish entrepreneurial solution to a difficult restructuring situation". Mr O'Brien, after all, lives in Portugal and, if the e-Island bid is successful, an American bank will be the power behind the throne.
