Telia's decision will brighten Eircom shareholders' outlook

TELIA, the Swedish telecommunications group, will announce next week that it is to `lock up' its 14 per cent stake in Eircom for six to nine months. The move will clear the way for KPN to dispose of its 21 per cent holding in the Irish group and offers the prospect of some relief for the company's long-suffering shareholders.

Eircom shares closed last night at €3.00 a fall of 17 cents on the day and down more than 20 per cent on their flotation price of €3.90. Uncertainty over the future of the stake held by Telia has been one of several factors depressing the Eircom share price in recent weeks.

Three weeks ago Telia surprised Eircom management and the market by pulling out of a plan to sell its shares together with KPN in a secondary stock market offering. The two companies were expected to jointly announce their plans on May 24th when Eircom published its first set of annual results as a public company.

The Swedish company changed its mind at the last minute infuriating its Dutch and Irish partners who were informed about it in the early hours of the morning before the results press conference. For the last three weeks the Swedish company, which floats on the stock market next week, has been under intense pressure from KPN and Eircom to clarify its intentions. It is understood that the two companies considered Telia to be in breach of an agreement made last year and also in breach of its obligations to other Eircom shareholders. Telia has denied that it ever agreed to sell its shares at the same time as KPN.

A spokeswoman for Telia declined to comment yesterday. An Eircom spokesman said: "We have been actively seeking clarification from Telia regarding its 14 per cent stake. We are urgently pressing them to make their intentions public." KPN was forced to hold off on its planned secondary offering of Eircom shares saying that it could not proceed until Telia showed its hand. The Dutch group is expected to start the secondary offering process within two weeks and the sale should be completed by the third week of July. The stake will most likely be sold at a discount to the market price, depressing the shares.

Analysts expect that Eircom shares should start to pick up after the KPN offering because the market will be reassured that there will be no other big share sellers as Telia will not be disposing of its stake for at least another six to nine months.

KPN and Telia acquired their holdings in Telecom Eireann - as Eircom was then known - in December 1996 as part of a strategic alliance agreement. As Comsource, they initially acquired 20 per cent of the company with an option to increase their stake to 35 per cent.

Both companies decided to exercise their option in the run up to the flotation of Telecom Eireann last June. In total they paid £383 million (€485 million) for their 35 per cent stake which was worth £2 billion following the Eircom flotation.

Under the terms of the strategic alliance the Government was entitled to clawback some of the profit that KPN and Telia made on their shares and in January this year the two companies paid the State £1.16 billion.