Eircom shares hit by Meteor

EIRCOM has had almost €130 million wiped off its market value since announcing it would buy Meteor for €420m earlier this week.

The fall has led some analysts to speculate that the company may have overpaid for the mobile operator.

“The decline in Eircom’s share price since the Meteor acquisition was announced could be taken to mean that the market believes that Meteor is actually worth €293m,” said Neil Clifford of Goodbody Stockbrokers yesterday. Goodbody is advising Eircom on the purchase.

But Mr Clifford said he believed this view was mistaken.

“Meteor is a business with a 10% market share in the most lucrative mobile market in Europe,” he said. Irish mobile phone users spend €47 per capita per month compared with a European average of €31. “While €420m may look expensive, valuing it at €293m definitely makes it look far too cheap,” he said.

Eircom has also rejected suggestions that it could have paid less for Meteor by buying it earlier.

Eircom’s chairman, Tony O’Reilly said this week that the company badly needed to get back into the mobile market but that it had been unable to break a non-compete deal with Vodafone after selling its Eircell subsidiary to the international mobile giant in 2001. T

he fixed-line business is “going down” and Eircom needed to address that, he said.

Tricia McEvoy of NCB Stockbrokers reiterated her buy rating for Eircom yesterday.

“Given the unexciting outlook for the fixed-line business, it was crucial for Eircom to re-enter the Irish mobile market,” she said.

Analysts pointed to the strategic importance of the purchase, which they said would transform Eircom from being a fixed-line only operator to being a fully-integrated player with good revenue and growth prospects.

Eircom said the price tag meant it was paying €1,000 for each Meteor subscriber and that this was broadly in line with similar deals taking place across Europe.

Analysts agreed the ultimate success of the acquisition would depend on how successful Eircom are at growing the business. They welcomed Eircom’s plans to use its existing 2,000-strong retail and sales workforce to drive the business forward and praised its plan to create a low-cost alternative to Vodafone and O2.