Terms agreed for Eircom sale

The Australian owner of Eircom has agreed terms with STT Communications (STTC) for a possible takeover of the Irish telecommunications firm.

The offer equivalent to A$1.335 per Eircom Holdings(ERC) share, which includes the proposed capital return of A$0.80 per share previously announced by ERC. This values the firm at A$224.15 million (€132.57 million) and is a 20.2 per cent premium on the closing price of A$1.11 per ERC share on June 24th, the last close before STTC’s proposal was announced.

The board of ERC, formerly known as Babcock Brown Capital, is recommending the offer led by STT, a subsidiary of Singapore Technologies Telemedia. The employee share ownership trust (ESOT), which has a 35 per cent stake in the company, has also agreed to back the deal.

Eircom chief executive Paul Donovan said in a statement this morning it was a "very positive development" and brings "important clarity" to the speculation that has surrounded Eircom for much of the year.

“It is my hope that the transaction will be concluded swiftly and we in Eircom will continue in parallel to drive operational programmes that will transform the company at a time when the challenges in Ireland’s communications sector have never been greater, and the imperative in overcoming them more acute,” he said.

A successful deal with STTC will mean the fifth change of ownership the telecoms firm has had since it was privatised just over 10 years ago.

"For some eighteen months now, the directors of ERC have engaged in an extensive strategic review of ERC designed to address the many concerns communicated to the board by shareholders and to maximise value for ERC shareholders," chairman of ERC Kerry Roxburgh said.

"This process has resulted in the termination of the management arrangements with Babcock & Brown along with proposals to return surplus capital to ERC shareholders."

ST Telemedia said the it was hoping to work with the Government, ComReg, ESOT and Eircom management and employees to continue to develop the telecoms firm.

The deal's announcement was welcomed by Chambers Ireland's Digital Policy Council today.

"Ireland needs continual and significant investment in broadband rollout across the country. A vibrant Eircom competing with other fixed line, wireless and cable broadband operators can deliver this goal. This deal will not only facilitate this but also brings clarity to the ownership speculation that has been in place for the past number of months," said Digital Policy Council chairwoman Claire Cunningham.

"If this takeover is successful, then Eircom's new owner will bring an interesting perspective to competition issues in Ireland given that it is a non-incumbent challenger brand in Singapore."

Fine Gael's communications spokesman Simon Coveney said the experience of previous Eircom sales had been "overwhelmingly negative" to date.

He blamed it on the fact that previous owners were venture capitalists, and accused them of seeking to make money quickly by re-selling the company at an inflated value without long-term capital investment.

"However, despite the negative history of privatising Eircom, it is important to say that STT are a different type of potential new owner. They are a very large global telecommunications company with considerable resources and so there is a realistic hope that this new owner is purchasing Eircom as a long term investment in the Irish economy," he said.

The most recent accounts for the telecoms firm showed the company incurred an operating loss of €486 million in the year to June.

Revenue fell 3 per cent to €1.99 billion, while adjusted earnings before interest tax depreciation and amortisation (Ebitda) dropped 1 per cent to €692 million. The company also lost 67,000 fixed-line contracts during the year.

However, Meteor - the company's mobile unit - saw its revenues and profit rise.