Eircom confirms takeover talks with Australians

EIRCOM has confirmed that it is in takeover talks with Australian investment bank Babcock & Brown.

Babcock, which already owns just over 12% of the company, has made an offer to buy Eircom believed to be at around €2.30 a share.

In a brief statement Eircom said: “The board of Eircom confirms the company has received a preliminary approach from Babcock & Brown Capital, which may or may not lead to an offer being made for the company. A further announcement may be made in due course as and when the need arises.”

The move by Babcock comes just months after Swisscom pulled out of takeover talks with Eircom.

The Swiss Government, which owned 66% of Swisscom, blocked the company from making foreign acquisitions.

Since then there have been rumours of a bid by Babcock, which spent €250 million buying shares in Eircom last October. At the time, the company said it was a “strategic shareholder.”

Shares in Eircom gained just over 2% yesterday, valuing the former State-owned company at e2.4 billion. They have risen by more than 12% in the past month on takeover speculation.

A takeover by an investment firm had been considered unlikely given the high level of debt the company would be left with after a buy-out.

When Eircom was acquired by the Valentia consortium fronted by Tony O’Reilly in 2001, a cost-cutting initiative was brought in, reducing the workforce by 2,000.

However, there is little room left for cuts and other savings that would be needed to pay off the interest and debt taken on if Eircom is taken over.

Dolmen Butler Briscoe head of research Stuart Draper said: “The areas of concern now are will they proceed and make a full offer, and at what level. Our view is there might be some disappointment at the level of the offer.”

According to some sources, Babcock may be considering splitting Eircom into two companies - one to run the phone network and the other a retail arm - if a takeover went ahead.

Eircom last week said third-quarter profits had fallen €15 million to €34m on the back on rising costs and competition from rivals.

But the results did show a 66% rise in the number of customers with Meteor, its mobile phone arm.

Meteor revenues are now running at around €23m a month, though it is not expected to make a significant contribution to group profits for some time.

It is not known how Eircom’s employee share ownership trust (ESOT) will react to interest of Babcock. The ESOT owns over 20% of Eircom’s shares and its support is necessary for any takeover to succeed.