Eircom faces its fourth change of ownership in seven years following a fresh takeover approach from an Australian investment group, writes Jane O'Sullivan, Markets Correspondent
Less than four months after a failed bid by Swisscom to buy the company, finance house Babcock & Brown has expressed an interest in making an offer for Eircom, which has twice floated on the stock market since its sale by the Government in 1999.
Following weeks of speculation and heavy trading in the shares, Eircom confirmed yesterday that it had received a "preliminary approach from Babcock & Brown Capital, which may or may not lead to an offer being made for the company".
Shares in the company, which is chaired by Sir Anthony O'Reilly, added nearly 2 per cent to close at €2.20 on the expectation that the Australians will proceed with a bid.
However, few analysts believe that a takeover offer from Babcock & Brown will top the €2.40 per share level that Swisscom had been willing to pay late last year.
The release last week of a weaker-than-expected set of third-quarter results, Eircom's heavy borrowings of close to €2 billion and the absence of the savings that could be made by an industry buyer like Swisscom point to a lower offer for the group, they say.
In the absence of a rival bid, most predict an offer of around €2.25 per share, which would value the company at €2.4 billion.
Babcock & Brown is already the second largest shareholder in Eircom, having acquired a 12.5 per cent stake last October.
The Sydney-based group has added to this in recent days by buying up shares in the stock market and said yesterday that it now owns around 14 per cent of Eircom.
But to gain outright control of the company, it would need the support of Eircom's current and former staff who own more than 21 per cent of the firm through the Esop (Employee Share Ownership Plan).
As well as seeking a good price, the Esop will be keen to ensure that any bidder will secure the long-term future of the company for its members.
Babcock & Brown's interest in Eircom follows hard on the heels of Swisscom's approach late last year. But the Swiss group was forced to abort its bid after it was blocked by the Swiss government.
Bidders have been attracted to Eircom by its exposure to the strong Irish economy and its presence in the fixed line, broadband and mobile telephone markets.
However, the company faces a number of challenges, including growing competition in its fixed line business, the main factor behind the weakness in last week's results.
But its mobile phone business, which it acquired when it bought Meteor last year, proved a bright spot in the figures and remains a key attraction for buyers.
If Babcock & Brown is successful in a bid for Eircom, it would see the telecoms company depart the stock market just two years after its return.
The former State-owned group first floated on the Irish Stock Exchange in July 1999.
But the subsequent collapse in its share price as telecoms and technology stocks fell from favour, left many of the hundreds of thousands of small shareholders who had invested in it nursing heavy losses.
Eircom was taken private just two years later by the O'Reilly-led Valentia consortium, which fought off a rival bid from a group led by the entrepreneur, Denis O'Brien.
Valentia went on to realise its investment in Eircom by again floating the company on the stock market in 2004.
At the time, the company was valued at €1.1 billion.
But if Babcock & Brown succeeds with a bid for the company, Eircom will again leave the market to become a private company under its fifth set of owners since 1999.