Intensive talks to conclude a deal to sell employees at Telecom Eireann 10 per cent of the company continued late last night. The talks are expected to resume this morning, as the final details of the £185 million deal emerge. A deal has already been agreed to give the employees 5 per cent of the company in exchange for major changes in work practices. Agreeing the deal for the other 9.9 per cent paves the way for Telecom to implement major restructuring plans, including 2,500 redundancies, cost cuts of £110 million a year and fundamental changes in work practices. The company must implement the changes to compete in the open market, as it will lose its deregation on voice telephony in the January 2000. Sources described the changes, known as the Transformation Agreement, as one of the most far reaching agreements ever put in place.

Intensive horse-trading has been taking place over the last number of weeks and talks moved into their final phase this week. Those attending the talks include officials representing the Government, the Department of Public Enterprise, Telecom and the communications workers.

It is understood that the Government initially pressed for £200 million for the 9.9 per cent stake. Their advisers Morgan Stanley value Telecom at £1.8 billion£2 billion.

However, the unions made it clear that they could not afford to pay this amount. Over recent days the Government appears to have rowed back on its initial demand, dropping to £190 million and towards £185 million.

It is believed that some Government sources were concerned that selling the stake could set a precedent for other utilities, such as the ESB. Employee shareholdings in state companies such as Aer Lingus, only account for 5 per cent.

It is also highly likely that there will be some form of public share offering in the short-term as Telecom seeks additional cash to fund expansion overseas. At present KPN/Telia, the Dutch/Swedish strategic alliance partners, holds a 20 per cent stake in Telecom which it purchased for £183 million 18 months ago.

However, under a complicated deal, Telecom will be revalued and the Government will be able to claw back further monies from the alliance, based on the enhanced value of the company. The alliance also has an option on a further 15 per cent for £200 million.

Under the deal to buy the 9.9 per cent, Telecom has offered to pay £90 million to the workers' pension fund as part of the deal. Staff will also have to make contributions to their pension schemes for the first time and cede productivity bonuses.

However, the unions have indicated that they would not be prepared to pay much more than £50 million, which would be raised through borrowings. The bank debt would be serviced through the dividends. Squaring this circle has been the focus of much negotiation this week.