Eircom backs €2.4bn Babcock & Brown bid

Eircom's board, led by Sir Anthony O'Reilly, has unanimously backed a €2.4 billion takeover offer for the company from Australian investment group Babcock & Brown and a majority of the company's workers. Jane O'Sullivan, Markets Correspondent, reports

Together with the Employee Share Ownership Trust (Esot), which represents nearly 83 per cent of Eircom's workers, Babcock & Brown will become the fifth owner of the telecoms group in just seven years.

As expected, it is offering shareholders €2.20 in cash for each share, along with a second interim dividend of 5.2 cent per share. There is a preference share alternative to the cash offer.

Under the terms of the deal, which is to be completed by September 30th, Eircom will be acquired by a company called BCM Ireland Holdings. Babcock & Brown will own 65 per cent of this entity, while the Esot will hold a 35 per cent stake, lifting its interest in Eircom from the current 21.6 per cent level.

The €2.252 in cash that shareholders will receive represents a 35 per cent premium to Eircom's average closing share price in the six months before it received a takeover approach from Swisscom last October. It is 4 per cent above the Eircom closing price the day before it received the Australian approach.

"The independent directors believe that the cash offer . . . is fair and reasonable and is in the best interests of Eircom ordinary shareholders, who will receive a substantial return on their investment since the Eircom IPO in March 2004," chairman Sir Anthony said.

The directors intend to accept the offer in respect of their 0.4 per cent stake in the company.

Investors who bought into the company when it last floated two years ago will get a 45 per cent return on their investment. Shares in Eircom rose by as much as 2.8 per cent after the announcement, closing 2.3 per cent higher at €2.20.

Babcock confirmed that Pierre Danon, a senior adviser at JP Morgan, will become chairman of the company, dividing his time between Eircom and the US financial services group. He was previously chief operating officer of French group CapGemini and is a former head of BT's retail division. Con Scanlon, manager of the Esot, will remain as deputy chairman of Eircom, which will continue to be headquartered in and managed from Ireland, although it will now be incorporated in the Cayman Islands.

The deal is being financed by equity contributions from Babcock & Brown and the Esot, which between them own more than 50 per cent of Eircom.

Some 80 per cent of the €4.8 billion cost of the deal, including Eircom's net debt and transaction costs, will be funded by raising debt finance of €3.8 billion.

However, both Moody's and Standard & Poor's, the two major international ratings agencies, have placed Eircom's ratings on review for a possible downgrade.

"The review for downgrade reflects Moody's expectation that the levels of indebtedness at the company could materially increase as a result of the acquisition," Moody's said. The offer is subject to regulatory approval and the approval of the Esot beneficiaries, who number 14,500.