Sir Anthony O'Reilly, the non-executive chairman of Eircom, stands to make more than €36 million from the flotation of the company next month. Sir Anthony plans to sell his entire 5.6 per cent stake in the company - acquired for €25 million in 2001 - as part of the flotation.
The businessman could clear more than €36 million based on a €61 million valuation put on his stake by a €1.1 billion price tag attached to the existing investors' stake in the company.
Sir Anthony - who is chairman and controlling shareholder of Independent News & Media - received a dividend of more than over €22 million last year when Valentia Holdings, the company that owns Eircom, was refinanced. This bring his total potential profit from his two-year involvement in the company to more than €58 million. He will continue as non-executive chairman of the company following its flotation on a salary in the region of €130,000.
The return on his investment mirrors those earned by the private equity companies with whom he co-invested in 2001. Providence Equity, the US private equity house that owns just under 50 per cent of Valentia, could make up to €215 million from the flotation on top of the dividend payment of around €190 million it received last year.
Soros Private Equity, which owns just under 20 per cent of Valentia, could net just under €90 million from the float in addition to its dividend payment of just under €80 million.
The Eircom ESOP Trustee - which owns just under 30 per cent of the company on behalf of former and current staff - is not planning to sell any shares. The paper value of its stake could rise to nearly €330 million, representing a paper profit of €127 million.
The investment banks behind the flotation - Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley - have put a value of around €3.6 billion on Eircom. This is close to six times the company's earnings last year as suggested by nine-month figures released yesterday. They showed that Eircom's EBITDA (earnings before interest, taxation, depreciation and amortisation) was €450 million in the nine months to the end of December.
When the company's debts of €2.2 billion are deducted from the €3.6 billion, the company could join the market with a capitalisation of €1.4 billion. Some €300 million of this will be made up of new equity, putting a value of €1.1 billion on the existing investors' stake.
Around €200 million of the €300 million being raised in new equity will be used to repay debt and the remainder will be used to facilitate the conversion of preference shares and meet the fees of the investment banks and other advisers, which will be close to €100 million.
The Eircom ESOP Trustee is to buy fresh shares in the primary offering to counteract the dilution of its stake. Despite this, the ESOP stake is expected to fall to nearer 28 per cent.
The firm is expected to issue a prospectus for investors early next week and begin a two-week marketing "road show". The marketing effort will emphasis the company's strong cash flow and ability to pay dividends equating to a yield of up to 6 per cent. This is at the top end of the range paid by peer companies.
The emphasis on dividends reflects the limited growth potential of Eircom, which has 80 per cent of the market for fixed-line telecommunications. The marketing will emphasise the potential for growth in broadband and also the company's plans to re-enter the mobile market.
