Rumours push Eircom shares up 6%

EIRCOM shares surged by as much as 6% yesterday on speculation that it may be the subject of a takeover bid.

Eircom ended takeover talks with Swisscom, Switzerland's main telecoms outfit, last December but continued rumours of a new bidder have driven the company's share price back up.

According to weekend reports, Australian investment fund Babcock & Brown are interested in buying Eircom. Babcock spent €250 million last year buying a 12.5% stake in Eircom its largest ever investment outside of Australia.

A spokesperson for Babcock said: "We don't have any comment on the latest round of speculation."

The spokesperson added that Babcock bought into Eircom last year to become a "long-term investor."

According to brokers, a private equity player would find it difficult to take over Eircom and make a large return, given the company already has a sizeable debt pile on its balance sheet. Brokers believe the most likely source of a takeover will be from a rival telecoms player.

Over the past week, Eircom shares have risen by around 8%, mainly on the back of newspaper reports of an impending takeover.

"The stock just seems to be driven very much by rumour at the moment," said one. "There doesn't seem to be much fact to back up the latest rumours."

Taking control of Eircom would cost any bidder around €2.5 billion and need the support of the company's employees, who own just over 20% of its shares.

The continued speculation has been a boost to Eircom's share price. When news of the Swisscom approach leaked out, its shares soared to €2.45.

They have fallen back significantly after the Swiss government blocked Swisscom from proceeding with the takeover.

A separate report linked Belgium's leading phone company to Eircom, but it also declined to comment.

Eircom would represent a good buy, given its return to the mobile phone market with the purchase of Meteor.

Eircom's traditional landline business has been badly affected by the popularity of mobile phones. Brokers believed that Eircom's future profits will be driven by Meteor and investment in broadband internet access.

Eircom is due to release third quarter financial results next week. These will be the first results to include Meteor's revenues and profits.

Eircom shares closed up 3.5% at €2.04, valuing the company at €2.1bn.

Additional reporting by Reuters