Shock as Eircom share price dips

EIRCOM'S share price fell as low as €1.48 in Dublin yesterday, down seven cent form its official launch price.

The share price dip shocked the markets as most analysts suggested the shares should make some gains at least in the "short term."

The slump raised the spectre of shareholders doing badly from their investment in the telecoms group for the second time.

Eircom went public in July 1999 and was taken over by private investors less than three years ago.

As a result of the sell-off, ordinary investors lost €300m on their initial investment in the group, which they cannot make up. They were excluded from this second coming and, on the basis of yesterday's debut, will probably consider themselves lucky. The shares ended 1 cent down in Dublin yesterday at €1.54, having fallen lower in heavy trading.

Less than three years ago, Tony O'Reilly and US investors, including George Soros, took the company private and invested a total of €462m to acquire a 70% stake in the business.

The Employee Share Option Trust accounts for the other 30% of the company, now worth about €600 million.

Eircom's shares, at €1.55, were priced at the lower end of its indicative scale of between €1.48 and €1.75 valuing it at €1.15bn. At that level the three private investors did not quite double their money on their initial investment.

With the €270m dividend they shared last year and the €1.55 they got for their shares, the troika have boosted their investment by about 60% in less than three years. In effect, Providence Equity made €505m on its initial investment of €310m; George Soros is €200m better off in total and Tony O'Reilly is about €55m up on his initial estimated €30m spend.

In all, 140 million shares were traded in London and Dublin yesterday as Eircom refloated.

The stock was oversubscribed two-and-a-half times, slightly above expectations.

For the shares to have gone up in value, it would need to have been four-and-a-half times oversubscribed, said Bloxham Stockbrokers' head of research Kevin McConnell.

Such pre-launch interest would have created much more of an appetite for the stock when the market opened, he said.

Given current weak market conditions, Mr McConnell said it was not surprising the shares dipped on their second debut.

This is not a great time at present in the markets, he said.

As a result of the reflotation, Eircom's debt has shot up from €190 to €2.2 billion and such a high debt level raises worries about its ability to pay the high dividend of over 7% in the first year.

Meanwhile, the Competition Authority announced it is to refer a complaint it has received from IFA Telecom about Eircom to the Commission for Communications Regulation (ComReg).