Eircom ‘will ask shareholders for €350m to fund Meteor takeover’

EIRCOM will ask shareholders to provide €350 million through a rights issue to part-fund the company’s takeover of mobile operator Meteor, according to market analysts.

The fixed-line phone operator, which holds its annual general meeting on Monday, will go to the markets to fund the bulk of the deal instead of adding to its already hefty debt burden of nearly €2 billion.

It has consistently declined to comment on its interest in Meteor but became the last remaining bidder for the company after Smart Telecom withdrew from the race on Thursday. Smart’s exit came just a week after a group headed by businessman Denis O’Brien pulled out. Both groups said the asking price was too high.

Davy Stockbrokers analyst Jack Gorman said the proposed €400m-plus price tag for the country’s smallest mobile operator, which has around 10% of the market, was “very expensive” based on similar deals in the sector. But the deal made strategic sense, he said. “It will provide it with owned infrastructure to freely price services, optimise bundled packages and pricing, and to explore fixed/mobile convergence,” he said.

But a rights issue would also add €22m to Eircom’s annual dividend bill. The company would need to increase the number of its shares in circulation by around 25% to raise the money needed and is committed to a policy that pays a relatively high dividend that will increase over time.

The company’s dividend policy is considered necessary to attract investors given its reliance on fixed-line phone services for revenue. The nature of the fixed-line market means Eircom’s revenues are expected to decline over time. Exposure to the higher-potential mobile market, coupled with the ability to offer combined fixed and mobile services, would be expected to grow revenues and make it easier to attract shareholders.

Taking over Meteor would also add significantly to Eircom’s marketing and capital expenditure bills.