The board of Eircom would appear to have relied on its own version of fuzzy maths in deciding to plump for Valentia over eIsland. The losing consortium was at pains to point out yesterday that its cash offer of #1.305 was considerably ahead of Valentia's cash offer of #1.27 cents.
EIsland's main unanswered question is that if, as Eircom is supposed to have maintained, the highest offer on the table at the end of the day was going to get the board recommendation, why was its bid not selected?
The answer, according to Eircom sources, lies in the value of the alternative cash and warrant offers that have been made by both sides. These offers include a smaller cash element and a warrant that will allow exiting shareholders share some of the proceeds if the company is sold or changes hands.
EIsland offered warrants covering 10 per cent of the company while Valentia offered them more than 5 per cent of the company.
Because Valentia has guaranteed to buy back its warrants for 4 cents in 12 months time and for seven cents in 36 months, a tangible value can be put on them. It is possible to work out what is the value today - in cash terms - of 7 cents that you will receive in three years. Put simply, it is the amount of cash you would have to invest today in order to be worth 7 cents in 36 months.
The answer, according to Eircom's adviser is 5.8 cents. This seems a little over-generous when you take into account that Goldman Sachs will only give you 4 cents for the warrants in 12 months' time.
Regardless of this, when you add 5.8 cents to the #1.25 cents cash component of the Valentia offer you get #1.308.
This is just 0.2 of a cent ahead of eIsland's highest cash offer but enough to allow the board to say it was the highest offer.
A similar exercise could not be conducted on the eIsland cash and warrant offer because it has not guaranteed the value of its warrants. JP Morgan, the bank advising eIsland, puts a value of 6 to 12 cents on the warrants, but that is contingent on the company being sold or floated. Eircom's advisers conducted their own analysis of the figures and came up with substantially lower valuations.
EIsland would appear to have decided not to contest the issue any further. A spokesman for eIsland said yesterday that the Eircom board had made its decision and eIsland accepted the realities of the situation.
The realities would appear to have included the problem that the Employee Share Ownership Trust (ESOT) was not interested in doing a deal with Mr O'Brien. EIsland claims to have outbid Valentia at every stage in the contest but still could not win the board's recommendation, primarily because the ESOT resolutely backed Valentia.
A successful bidder needs acceptances from shareholders controlling 80 per cent of the company, an almost impossible target if you did not have the support of the ESOT, which owns 15 per cent.
The nightmare scenario for the Eircom board would have been to recommend a higher offer from eIsland which would not command sufficient support from shareholders to succeed.
The frenetic discussions over the weekend seemed to have centred around getting Valentia to match eIsland's bid, which would allow the board recommend it.
Both sides made the last of several final bids on Sunday and once again Mr O'Brien seemed to have trumped Valentia and the stalemate looked set to continue. But once the fuzzy maths was done, Valentia came out on top and got the board's recommendation yesterday morning.
Valentia moved quickly to lock in Comsource, the Dutch-Swedish joint venture which owns 35 per cent of Eircom. KPN of Holland and Sweden's Telia have now given an irrevocable undertaking to accept the Valentia offer.
They can only break their undertaking if a rival bidder offers #1.355 per share or more for Eircom.
