ANALYSIS:Eircom's new masters will demand big returns, but could bring an end to a wayward odyssey, writes ARTHUR BEESLEY.
TEN YEARS and one month after its controversial flotation, Eircom is set to change hands for a fifth time since the Fianna Fáil-PD coalition privatised the former Telecom Éireann. Although final details are still under discussion, informed sources say a sale to Singapore Technologies Telemedia (STT) is imminent.
STT, a unit of Singapore’s sovereign wealth fund Temasek Holdings, is a telecoms trade player with interests in Singapore, Cambodia and Laos. It also holds a majority stake in Global Crossing, the international fibre-optic network company which has an operation in Ireland.
The financial parameters of the deal remain to be seen. It is likely, however, that the latest takeover of Eircom will be presented as a new departure for a business whose time in private ownership led to rampant instability and an ever-increasing debt burden.
Although STT’s action plan for Eircom and its over-stretched balance sheet is not yet known, the hope at this stage must be that the new owner comes in for the long-term with a commitment to invest heavily in Ireland’s biggest telecoms network.
That said, STT is likely to pursue a purely commercial strategy. Temasek is nursing serious losses amid the current volatility on global markets. Last week it emerged that the value of its investment portfolio fell by 40 billion Singaporean dollars (€19.4 billion) in the year to March. Therefore, the fund is likely to demand big returns.
Eircom’s turbulent spell in the control of troubled Australian investment fund Babcock Brown Capital (BCM) was just another phase in a wayward commercial odyssey in which various owners seemed to concentrate more on the next transaction than on running the business. A new chief executive, Paul Donovan, took the helm last month. Charged among other things with reducing Eircom’s staff by 1,200 within two years, he will now work to new masters.
The kingmaker in the deal was the Employee Share Ownership Plan (Esot) in Eircom, owner of 35 per cent of the business. In June the Esot blew away Eircom’s other suitors – private equity firms Permira, CVC and Arcapita and businessman Seán Melly – when it publicly backed STT.
Always pragmatic and one of the biggest beneficiaries of Eircom’s avid deal-making, the Esot has ploughed a highly profitable course in the capitalist world. Now it seems set to enter an alliance with a well-endowed branch of an authoritarian state that was one of the original Asian tigers.
Close political scrutiny of STT’s Irish foray seems inevitable in its home market. Temesek chief Ho Ching is married to Singapore’s prime minister, Lee Hsien Loong, and is daughter-in-law of the city-state’s founder, Lee Kuan Yew.
How times change. In July 1999, half a million Irish people invested roughly £1.8 billion in Telecom’s flotation. Huge numbers of shareholders incurred big losses, alienating many from the stock market. Soon enough, property became the dominant investment mode in Ireland. That’s another story.
