Investing in Eircom flotation costs dearly

THOSE who bought into the Eircom flotation should be hopping mad.

The near 500,000 Irish investors who took a punt on what they thought was a sure thing have had their eyes wiped.

Of that there is no doubt. As I write those who dug deep to support the privatisation of the state phone company are down about €300 million or 25% of what they invested in the business prior to the flotation in July 1999.

Under the re flotation plans Tony O’Reilly is set to make between €40 and €50m for his sortie into the business while his associate George Soros and others are to make between €200 and €400m.

The current boss of the business Philip Nolan will have shares worth close to €4m and ‘for what ?’ those of you who were badly stung are well entitled to ask.

Just to rub salt into the wounds former boss of the group, Alfie Kane, walked away with over €3m from the company after it was taken over by O’Reilly and his US allies.

In the run up to the flotation AIB bagged about €100m in fees while other hangers including public relations advisers made several million in the process as well.

The government of course scooped the biggest pool walking away with nearly €6bn from the float of which €4.5bn went into the pension sinking fund. That cannot be touched until 2025 and those who lost 30% of what they invested at least have the slim comfort of knowing the money they stumped up for the shares may help to fund their pensions in their old age.

If the Finance Minister starts to run out of money in the meantime he might change his mind on that, who knows?

From a flotation perspective Eircom has been a disaster from several perspectives, not just for those who lost heavily on their investments.

It cost ordinary investors €300m as stock markets collapsed.

That collapse allowed the business to be bought cheaply in the end by Tony O’Reilly and his rich buddies in the US.

Now they collectively stand to make more than ordinary investors lost within two years of buying the business.

Pension funds who lost out look as if they are prepared to get back in again on this occasion despite the hard lessons of the past.

In the end this entire process has been an exercise in greed that has left the state without badly needed investment in broadband technology and thousands of people out of pocket, some very seriously so.

Broadband is the highway down which the internet and all of our modern communications will travel in the years ahead.

Prior to the Eircom flotation it was seen as our salvation as we moved up to a knowledge based economy.

Post flotation that did not happen because Eircom by then had duties to its shareholders who needed dividends and the capital investment wasn’t made.

Following the buy out by the Valencia consortium the broadband issue still remains unresolved, despite the critical importance of this technology to the ongoing economic well being of this state.

I nearly forgot to mention that the workforce past and present are up about €600m due to flotation, sale and re flotation process which means about 12,000 of them have holdings worth €50,000 each in the business.

It is slightly ironic that the Communications Workers Union has, apart form the government, been the other major beneficiary out of the entire process and their general secretary Con Scanlon, has also come well out of the deal.

It’s quite extraordinary really that almost every other grouping that had a hand in the Eircom launch has come out of it well with the exception of the ordinary shareholder.

But then as they must know by now in any situation where big vested interests are involved their concerns simply go out the window.

That’s the cynical truth of what we have been witnessing and are about to witness once more as this former state company is brought back to the market.

At least O’Reilly and his co-investors have had the good sense not to offer shares to the general public on this occasion.

It will probably be the final kick in the gut for those who have been taken to the cleaners during this episode of privatisation that the shares will do well after they come to the market this time.

Anyone for Eircom?