What has happened to Alfie Kane? Five weeks ago, in an interview with this paper, the Eircom chief executive said his strategy was to defend and grow the company's leading position in the fixed line, mobile and Internet markets in Ireland. This week Eircom confirmed it is in talks that could see the sale of the mobile business, Eircell, in a move that presages a break-up of the company.
The Pauline conversion undergone by Mr Kane in the last few weeks is all the more extraordinary as he has a reputation for being a determined and dogmatic individual who is unlikely to easily swayed. In his six years at the helm of the company, he has not been noted for avoiding the difficult decisions that, in the short term at least, were unpopular.
But since the company's flotation last year, Mr Kane must answer to the stock market and not one arm's length shareholder, in the form of the government of the day, that is prepared to take a long-term view. Mr Kane is now judged by the stock markets, and what he has been up to recently has not been that well-received. He may be inclined to tough it out and stick with his initial strategy, but the Eircom board - which sat through five hours of abuse at the company's annual general meeting last month - appears to think otherwise.
Foremost among the directors is the Eircom chairman Mr Ray MacSharry. A former finance minister and European commissioner, Mr MacSharry was the surprise choice after the premature departure of Mr Brian Thompson, the US telecoms guru who was the initial choice to take the company private.
An astute politician, Mr MacSharry would be well aware of the futility of trying to fight popular sentiment and the market in particular, no matter how good your strategy might be. Other directors, such as Mr Jim Flavin of DCC and Mr Pat Molloy, former chief executive of Bank of Ireland, would also know the importance of giving shareholders what they want. Something else may be preying on Mr MacSharry's mind. As a very influential behind-the-scenes figure in Fianna Fail, Mr MacSharry would know better than anyone what sort of a gift it will be to the opposition at the next election if 450,000 small shareholders are nursing losses as a result of the ail-led Government's handling of the Eircom float. Merrill Lynch, the US merchant bank, has no doubt also played a part in the change of heart at Eircom. It is best remembered as the adviser to the Government on the initial public offering, when it pushed for a price of €4.26, 36 cents ahead of the final price. The flotation would almost certainly have been as big a success at the price suggested by Merrill Lynch, but the Government must be thanking its lucky stars that it did not go with the US bank's recommendation. The same short-term thinking that was behind the advice on pricing the issue now appears to underpin Merrill Lynch's current counsel to Eircom. The sale of Eircell will solve the immediate problem facing the company - the low share price - but long term will lead to its disintegration and may not be in shareholders' interests.
Merrill Lynch, which declined to comment this week, would probably prefer to have its advice framed against a backdrop highlighting the speed of change in the telecommunications market, which forces companies to adapt or die. Mr Kane's strategy might have been a good one last month, but in the current market it does not make sense, it would argue. All of the major integrated telecoms companies, such as BT and Deutsche Telekom, are finding they are worth less - to the stock market at least - than the sum of their parts. Vodafone, which is bidding for Eircell, on the other hand, is favoured by the market because of its focus on one sector, mobile telecommunications.
It is not surprising then that British Telecom is considering splitting its business up in order to respond to this shift in sentiment. The race is now on to be the first big telecom company to split, as the first mover can be assured of an enthusiastic response from the market.
Eircell's sale and the resultant break-up of Eircom could benefit from this tide of sentiment. As stockbrokers like to say: "They will have a good story to tell."
In reality the story may be little more than the abandonment of a coherent long-term strategy in order to cash in on positive market sentiment and realise some cash for irritated shareholders. These same shareholders will have the chance to vote on the first part of the break-up strategy: the sale of Eircell to Vodafone.
The sheer importance of Eircell to Eircom - it accounts for 70 per cent of the market value - means that an extraordinary meeting would have to approve the sale. Veterans of last month's a.g.m. will know that whatever happens at the gathering will be largely irrelevant as the big institutional fund managers, who own the company in reality, will decide the outcome.
Fund managers are open to the idea of selling Eircell. The mobile company probably does not have a future as an independent network and would have to form some kind of link to the global network being built by Vodafone and its competitors. When Eircom sells Eircell, it will be cashing in its biggest chip and it is crucial that it is done right, according to one fund manager with a large stake in the company. What the company decided to do with the proceeds of the sale would have a bearing on how much support it got from shareholders, including the Eircom Employee Share Ownership Plan Trustee, which owns 15 per cent of the company on behalf of the staff.
Institutional investors all have different strategies and priorities. Some may be happy to get Vodafone shares and accept a devaluation of their Eircom shares, reflecting the loss of its main business unit. Others, such as the Employee Share Ownership Plan Trustee, may take a longer-term view and oppose the company's clearly signalled intention to pass the bulk of the Eircell proceeds on to shareholders, probably in the form of Vodafone shares.
A less populist strategy would be to seek cash for Eircell and apply the €4 billion to buying out the 35 per cent of the company held by KPN, the Dutch phone company, and Telia, its Swedish counterpart. Both are now passive investors, having signalled their intention to sell out as soon as possible. The remainder of the proceeds could then be invested in the unfashionable, but profitable, rump of Eircom, the fixed-line business. The multimedia and Internet business is expected to be sold off early next year. Eircom has more fixed-line customers than mobile subscribers, but the 1.3 million mobile users are worth about twice as much in the eyes of the market.
"There is no logic to that," according to one fund manager, who would like to see Eircom use the Eircell proceeds to upgrade its fixed-line networks to carry high-speed Internet access, video on demand and other services. On the face of it Eircom and its advisers seem to have opted for a short-term strategy, apparently designed to placate the short-term investors, many of whom happen to be voters.
