Vodafone is expected to pay significantly less for Eircell than the €5.1 billion that has been suggested to date. It is understood that negotiations between Eircom and the British group are now in their final stages and the price will be in the €4.6 billion to €5 billion range. An announcement is expected in the week before Christmas. The publication this week of the terms under which the next generation of mobile phone licences will be issued by the Office of the Director of Telecommunications Regulation has removed the most serious obstacle holding up the deal. Vodafone had cited lack of clarity about the regulatory framework as one reason for delaying. The final decision on price is now expected to be made next week. A value of €5.1 billion had been mooted when news of talks between the two companies first emerged. The final price will be less than this, according to sources close to the talks.
They said yesterday that the lower price reflected changes in the valuations of telecommunications companies generally, and Vodafone and Eircom in particular, in the three months during which the talks have been going on. Despite being granted exclusive negotiating rights over six weeks ago, the British group has been slow to close the deal, leading to speculation that it was trying to drive down the price. Neither Vodafone nor Eircom participated significantly in a Europe-wide rally in telecoms stocks yesterday. Vodafone closed at £2.67 1/2p sterling yesterday, down from the £2.80 sterling it was at when news of the talks broke. Eircom closed more or less unchanged at €2.90 yesterday, but remains significantly above the €2.46 levels to which it had sunk last October when the talks began. Eircell will be demerged from Eircom and sold on to Vodafone in an all-share deal. If the price is as low as €4.6 billion, then Vodafone will only have to issue just over one billion shares based on yesterday's price. This means that, with more that 2.2 billion Eircom shares in issue, Eircom shareholders will get less than one Vodafone share in respect of every two Eircom shares they now hold.
Plans by Eircom's chief executive, Mr Alfie Kane, to hold on to some of the proceeds of the sale for corporate purposes are likely to be shelved following an indication from Comsource that it would not support him. Comsource is a 60/40 joint venture between KPN of the Netherlands and Telia of Sweden and owns 35 per cent of Eircom.
Once the Eircell deal is completed, Eircom is expected to move quickly to consider a €2.2 billion offer from eIsland for its fixed line business. Yesterday the two sides signed a confidentiality agreement which opens the way to full talks and an improved bid from the consortium led by businessman Mr Denis O'Brien. A number of other bidders are expected to emerge for the fixed-line business, including a consortium being put together by a US investment bank that might involve Dr Tony O'Reilly, the chairman of Independent News & Media.
