Eircom's shareholders could see their beleaguered shares start to rise today amid speculation that a takeover of its Eircell mobile phone operation by Vodafone is imminent.
If Eircom shares start to move ahead significantly on the market this morning, the company will have to issue a statement to the Stock Exchange confirming it is in advanced negotiations with the British giant, Vodafone.
Eircom would only say yesterday that it "never comments on speculation". But weekend reports that Vodafone was close to acquiring all or a large part of Eircell in a €4 billion to €5 billion deal are understood to be accurate.
Eircell is the fast-growing mobile phone subsidiary of Eircom. It accounts for about 75 per cent of the current €5.4 billion market valuation of Eircom. It has about 60 per cent of the Irish mobile phone market and over one million subscribers.
If a deal is agreed and Eircom negotiates a good price for Eircell, Eircom shares should start to recover ground. This should happen because the deal would leave Eircom with Vodafone shares to the value of the price agreed for Eircell, plus its existing multimedia and fixed line businesses.
These remaining businesses are considered undervalued within the consolidated company, and the sale of Eircell could force the market to reassess their value.
The total value of what Eircom owns after a deal should be more than the value the market has put on the company. And if Eircom management can convince the market it can focus on and develop the remaining businesses - perhaps as separate and publicly quoted operations - shareholders may eventually be able to recover their investment in Eircom.
Eircom shares closed at €2.46 on Friday, just off their recent low of €2.42. Since the company was floated just over a year ago at €3.90, shareholders have seen the share price rise to €5.00 before it started to slide. At €2.46 the shares have lost over one-third of their flotation price.
While Eircell is Eircom's most successful business, an analyst suggested it may now be a good time to sell, because it may have reached its peak given that it will face increasing competition as new mobile licences are awarded.
Vodafone is one of the largest mobile phone operations in the world, with operations in Britain, the US, Europe and Asia. It is an aggressive business and is growing rapidly.