Significant issues have arisen in the talks between Eircom and Vodafone which could delay the sale of Eircell to the British mobile phone giant until Christmas.
Sources on both sides of the deal said yesterday that they still hoped problems over third generation mobile licences, the position of Comsource (Eircom's 35 per cent shareholders KPN and Telia) and regulatory issues could be overcome.
If Vodafone cannot get what it wants it may seek to pay less than the €5.1 billion (£4 billion) being sought by Eircom. "It is not an issue of value at this stage," said a source close to the UK group. "If Vodafone gets into a market they must feel that it is going to be attractive," he said. It is understood that Vodafone wants some assurances about third generation mobile licences and the Republic's regulatory environment.
The company wants to ensure it gets a third generation licence and needs clarity as to what Eircom's mobile strategy would be following the Eircell sale. It has been reported that the company will seek to re-enter the mobile business either as a virtual network operator or possibly by bidding for a third generation licence. If Eircom pursued either of these options, it would have a significant bearing on Eircell's business and Vodafone's plans for the Irish market.
UMTS, or third generation wireless technology, is expected to quickly supersede the GSM technology that mobile operators now use. It will allow high-speed Internet and data traffic. Eircom sources have said that the deal is not conditional on Eircell obtaining a third generation licence when they are awarded, probably early next year. The licences will be given out in a "beauty parade" rather than through the auction process used in most other European countries to date. The licences will cost in the region of £100 million (€126 million).
There are also questions over Comsource. The Dutch and Swedish telecoms companies are seeking to exit Eircom and do not want to remain once Eircell has been sold. KPN owns 21 per cent and Telia has 14 per cent. As the largest shareholder group it could block the deal. Sources close to Eircom were emphatic that the deal with Vodafone is solid and there is no danger of it unravelling over the various issues still to be sorted out. "The price is firm," said the source, referring to the €5.1 billion valuation that has been put on Eircell by both parties. "The price is fixed bar something coming out of the due diligence. Nothing untoward has emerged from that and nothing is likely to emerge," the source said.
He did add, however, that while the €5.1 billion price is firm, the number of Vodafone shares that Eircom will end up getting may not necessarily be on the one-for-two basis that first produced that valuation some weeks ago. Vodafone shares have been volatile of late, weakening ahead of this week's interim results and then recovering strongly after the results were ahead of market expectations.
Meanwhile, little progress seems to have been made on the €2.2 billion offer for Eircom's fixed line business from Mr Denis O'Brien's e-Island consortium. There have been contacts between Merrill Lynch for Eircom and DLJ for e-Island but nothing substantive has emerged.
It is understood, however, that e-Island will soon be told that its €2.2 billion offer is substantially too low and that an offer closer to €2.7 billion would be required to get the Eircom board's support. It is understood that there has been no contact - formal or informal - with Dr Tony O'Reilly, who was thought to be considering a bid for Eircom's fixed line, Internet and directories business.
