Babcock & Brown will have its own agenda and change is likely, writes Arthur Beesley
The publication of Eircom's annual results, 10 days ahead of schedule, clears the way for a formal bid for the telco from the Australian private equity group Babcock & Brown and the Eircom employee share ownership trust (Esot).
An offer document now in preparation will be published within days, according to sources. Shares in Eircom are trading at a premium to their 2004 flotation price of €1.55. This means that an offer at €2.20 per share, taken with the 5.2 cent second interim dividend declared yesterday, is likely to be accompanied with a recommendation from the telco's board.
With a change of ownership and a delisting from the stock market imminent, the release of full-year figures to the stock market yesterday had the air of a tidying up exercise before the main event. No matter what Eircom's current management says about the business, the simple fact is that new owners will have their own agenda. JP Morgan senior adviser Pierre Danon is on board to take up the role of executive chairman and there is every possibility that the top management team will be changed too.
Still, the results for the year to March present a clear picture of the condition of the Eircom business that will change hands. With voice revenues on fixed line networks in decline throughout the telecoms industry, Babcock & Brown is likely to concentrate on Eircom's newly-acquired Meteor mobile business and on its much-derided broadband offering.
Eircom had a measure of progress to report on both these fronts. Long the laggard on the Irish mobile scene, Meteor added 60,000 subscribers in the fourth quarter to bring its total to 625,000, 66 per cent more than a year ago. Chief financial officer Philip Lynch said on a conference call for analysts that capital expenditure on the mobile division will almost double to €100 million this year.
Babcock & Brown's view of the capital requirement remains unclear, but Mr Lynch said such expenditure was needed to bring the Meteor service on a par with the rest of the Eircom business. The company's aim is to capture 20 per cent market share with 25 per cent of its client base on bill-paying contracts. It claims 15 per cent of the market at present, with 8 per cent of clients bill-paying.
As for broadband, Eircom said it was adding about 2,500 subscribers per week to bring the total to 250,000 by last Friday. Chief executive Dr Phil Nolan said the company was unfairly criticised over the service and said 85 per cent of the company's lines were now connected to broadband enabled exchanges. Connecting the other 15 per cent would be uneconomic without a Government investment of €50-€60 million, he said.
He attributed the level of take-up of the technology to the low price of Eircom's dial-up internet service, which he said was sufficient for needs of most customers.
The fact that use of personal computers was lower here than elsewhere in Europe was another factor, he said.
Pretax profit rose to €112 million from €88 million while revenue grew marginally to €1.69 billion from €1.6 billion. While the results exceeded analysts' expectations, Eircom took the benefit of a €52 million profit on the disposal of the Westgate property near Heuston station in Dublin and a smaller investment.
For all that, the real action is elsewhere. Citigroup labelled the results a "side-show". After the Swisscom fiasco, Eircom's latest courtship is nearing its conclusion. The scene is set.
