The Eircom board and management are heading into a key period. If they are to reject the latest offer from Mr Denis O'Brien's e-Island consortium, then they will have to persuade shareholders that something better is on offer. In the absence of a counterbid from another party, this means that the board will have to put forward a convincing growth strategy if it is to persuade shareholders that they would be better off sticking with current management than selling their shares to Mr O'Brien's consortium.
What is in prospect now is a complete break up of Eircom. Its mobile phone subsidiary, Eircell, is to be sold to Vodafone, subject to shareholder approval. The weakness in the Vodafone share price means that this approval cannot be taken for granted; agreement will also have to be reached with Eircom's unions.
Now Mr O'Brien's consortium is bidding for the rest of the business, including Eircom's traditional fixed line business and its various multimedia operations. Mr O'Brien first expressed an interest last year in buying Eircom's fixed line business. Now he has lodged a higher bid, but also wants to take over Eircom's multimedia operations. He plans to offer shareholders €1.10 per share. Adding to this the €1.65 per share offer for Eircell from Vodafone, shareholders would still be left well short of the €3.90 flotation price.
Shareholders will be asked to vote on the Vodafone offer at an extraordinary general meeting, which will probably be held late next month or in April. If the board decides to recommend the e-Island offer to shareholders, then they would also probably be asked to vote on that proposal at the same meeting. For Mr O'Brien it is an opportune time to bid for Eircom. The shares of telecommunications companies are trading weakly on international markets, while the value put on multimedia assets has plummeted. The consortium's strategy for Eircom is not clear, but no doubt it hopes to develop areas of it aggressively and perhaps realise its increased value by selling it - or re-floating it on the market - after a period of years. Many of Eircom's shareholders would be pleased to see the cash return from accepting the e-Island bid. Certainly KPN of the Netherlands and Telia of Sweden - who between them hold 35 per cent - are keen to sell.
The employees - who hold 15 per cent through a share ownership scheme - will be focused, in part at least, on other issues, such as what plans Mr O'Brien might have for staff numbers. Their role may be crucial in the drama to come, given that Mr O'Brien's consortium would need to get in excess of 80 per cent of the shares before being able to automatically acquire the remainder.
Eircom's board is now in the spotlight. It must do what is in the best long-term interest of shareholders and of the company and not be panicked by the difficult situation it is in. If they really believe that Mr O'Brien's offer undervalues the company, then the board and management must clearly demonstrate why this is so and what they intend to do about it if they stay in charge.