Norwegian telecoms group Telenor has left the door open for making another increased offer for Esat Telecom, after it said yesterday that it reserved the right to increase the offer, if circumstances justified such a course of action.
While this is largely a procedural statement to comply with the requirements of the Irish Takeover Panel and the SEC, the indications are that Telenor will have to move once again if it is to succeed in buying Esat, whose shares have continued to trade well above the $85 (€84) a share offer price.
On the Nasdaq market, where the bulk of Esat shares deal, they traded yesterday as high as $95 before settling back around the overnight level of $90. At the close of trading in New York, Esat shares were on $90 down $1.12 1/2 cents on the day.
Meanwhile, although Telenor launched its formal offer document for Esat yesterday, the board of Esat is unlikely to meet until after Christmas to decide on a formal response. Given the way the shares are trading on the markets, however, it seems certain that the board will reject the latest offer, which values Esat at $1.9 billion and which values chairman Mr Denis O'Brien's stake at almost $250 million.
It is expected that Esat, in its initial response, will draw attention to the approaches it has received from other potential bidders as well as the disparity between Telenor's revised offer and the price in the market. Esat shareholders can expect to hear the company's response in its formal defence document sometime after the Christmas break.
The Esat board rejected the first offer from Telenor ( made in tandem with Telia) but has so far merely said it has noted the revised offer and will meet to discuss it.
Market sources believe that Telenor may have to go as far as $95 a share if it is to have any chance of getting the Esat board to recommend the offer. An offer of that scale would value Esat at $2.1 billion - every additional $5 on the share price is equivalent to an extra $100 million for Esat shareholders.
In its offer document which has just been posted to Esat shareholders, Telenor states Esat was an under-performing stock for most of 1999 and that between January and the end of November - when Mr O'Brien first met Telenor representatives - the share had under-performed the Nasdaq Telecommunications Index by 29 per cent.
Telenor has also warned that Esat is facing a series of challenges over the next 10 years, including $753 million in capital expenditure. It adds that Esat has had to resort to high-yield debt issues to finance its existing investment programme and may have to continue to do so in the future. It warns of increasing competition from the likes of BT (through Ocean) and NTL and states bluntly that Esat's fixed-line operations are "an unproven concept". Telenor says the $85 a share offer substantially exceeds Esat's intrinsic value, which it puts at $1.5 billion or $67.90 per share compared to the $1.9 billion ($85 a share) value of the increased offer. The bidder also claims that if Esat's existing high-yield debt is valued at its estimated tender value, a further deduction of $147 million would be appropriate, reducing Esat's intrinsic value to $52 a share.
The market remains convinced that a higher price will be paid - if not by Telenor then by some third party.
