THE AUSTRALIAN owners of Eircom have cut the value of their investment in the telecoms company by more than €700 million, acknowledging that they overpaid for the business when they bought it for €2.36 billion less than three years ago.
In financial results to be published this morning, the writedown of almost three-quarters of a billion euro will be attributed to a marked deterioration in the outlook for Eircom’s profits and its increasing pension deficit.
Profits are falling due to the combined forces of economic contraction and aggressive competition from rival firms which are radically undercutting Eircom’s prices for certain products.
The pension deficit in the company, whose debts exceed €3.7 billion, now stands at some €450 million.
Eircom will embark on a cost-saving exercise in light of these pressures, leading some sources to speculate that a round of job cuts is on the way. However, there will be no announcement today of any retrenchment programme.
Eircom executive Cathal Magee has been appointed acting chief executive in succession to Rex Comb, one of a number of Australian businessmen who came to work for the firm in 2006 after it was acquired by a consortium led by Sydney-based investment fund Babcock Brown Capital (BCM).
Having stated when resigning last month that he planned to stay on until June, Mr Comb left the business yesterday.
BCM and its affiliates own 65 per cent of Eircom and members of the Eircom employee share ownership trust (Esot) own the remaining 35 per cent. Esot members – certain staff and former staff – have received several big payments from Eircom since its controversial privatisation a decade ago.
However, the firm’s future has been shrouded in uncertainty since BCM came under severe pressure last year as investors questioned its business model. The fund is an offshoot of Sydney investment bank Babcock Brown, whose shares are in suspension as it strives to agree new lending terms with its lenders.
Although observers believe the pressures on Eircom will lead to a sale of the company in the medium term, pressure on the business and the credit crunch in international markets suggest an early sale is unlikely.
