Eircom now looks likely to be broken up and sold off over the coming months. Shareholders are expected to approve the sale of its mobile arm, Eircell, to the UK company, Vodafone, at an extraordinary general meeting next month. And it is now likely that the rest of the company will be sold off subsequently, effectively ending Eircom's short life as a public company. Whether this is in the interest of shareholders is open to question. It also raises issues of public policy, which are relevant to the telecommunications sector and to future privatisations.
The support of Eircom's large shareholders means that approval for the sale of Eircell to Vodafone now appears almost certain, barring an unexpected fall in the British group's share price. Now, two consortiums have expressed an interest in buying the rest of the group, which mainly comprises Eircom's fixed-line business. A group of venture capitalists have linked with up with the leading businessman, Sir Anthony O'Reilly, while the Esat founder, Mr Denis O'Brien is leading a separate group. Neither has yet lodged a formal bid. Whether the financier, Mr Dermot Desmond, decides to lead another bid remains to be seen.
News of the strong interest in buying Eircom's fixed-line businesses is seen by some as good news for shareholders. In the short term it is. The cash return will probably be more than the shares would be worth on the market for some time. They will also receive Vodafone shares from the Eircell deal. However taking a longer term view, the outcome for shareholders may not look so good. Those who came in at the flotation price bought when telecoms stocks were buoyant; they may now be asked to sell at a time when this sector's shares have fallen sharply.
There is nothing to say that the market in telecoms shares will quickly improve, of course. But the interest of various bidders in buying its remaining assets after the Eircell sale is a clear demonstration that they believe something of a bargain is now on offer. It remains to be seen what formal bids will emerge and how the Eircom board reacts. They do not appear to have a strategy to develop the group themselves - as have been evident by the twists and turns in their approach since flotation - and are thus likely to opt to sell.
The board and shareholders will need to assess fully any emerging bids and examine the intentions of the bidding groups. The Government and the Competition Authority may also want to examine aspects of any deal from a competition viewpoint; for example the Independent News and Media Group, chaired by Sir Anthony, is a leading media player in Ireland and has a stake in cable company Chorus.
From the point of view of public policy, the danger now is that a successful bidder may focus on turning a quick profit by seeking savings at Eircom and selling it on in a couple of years. This is far from the development strategy envisaged at flotation and raises questions about the spread of advanced telecommunications services. However these issues are unlikely to feature highly in the Eircom boardroom, where the pressure is on to secure the most favourable short-term deal for shareholders.