Eircom set to conclude landmark deal

The biggest deal in Irish corporate history was back on track last night after Eircom management reached agreement with its unions on the terms under which Eircell's 1,200 employees would join Vodafone.

The £22 million (€28 million) settlement has yet to be formally approved by the board of Eircom and the trustees of the various union, but no problems are anticipated.

A company source said last night: "It was a good outcome for everybody." A union official described it as "fair and reasonable". Vodafone will be "totally happy with it", said an insider.

The alternative would have been a return to the unofficial stoppages which plagued Eircom over the previous four weeks. In the longer term it could have led to an unravelling of the €4 billion (£3.2 billion) sale of Eircell to Vodafone.

Instead, Eircom has agreed to set up a new £22 million employee share ownership trust (ESOT) for the 1,200 staff due to transfer with Eircell to Vodafone. The net cost of the ESOT is expected to be around £18 million, as the investment can be set against tax liabilities on Eircom's profit and loss account. Despite the significant cost to Eircom the news may have a positive impact on Eircom's shares which fell six cents to €2.53 yesterday on the back of general weakness in telecom shares.

The deal represents a victory for Mr Con Scanlon of the Communication Workers' Union and the other union leaders. It reflects the strong hand they held in the negotiations given that had the dispute not been resolved the sale of Eircell to Vodafone could not have gone ahead. The confrontation was not without risk for the unions, however, as the collapse of the sale would also have damaged the parent company and, with it, the value of the ESOT shareholdings of 11,000 staff.

Just under 15 per cent of the company was given to staff in 1999 when Eircom was floated, but the stake will not be fully distributed for another three years. Staff moving to Vodafone will miss out on the remaining allocations worth an average of £20,000 per person.

Eircom management had originally argued that the unions should change the rules of the original Eircom ESOT to allow either an accelerated allocation of shares or let Eircell staff take their entitlement to Vodafone.

The unions resisted this argument, saying the 10,000 ESOT members staying with Eircom would never agree to reduce the value of their own stake to that extent. They also said such an approach would be open to legal challenge from the 2,500 former Eircom employees who had already left and had to forgo any future tranches of shares.

The unions had sought cash compensation for departing staff which would have cost Eircom up to £50 million. The unions had offered to provide "proportionate" funding of £7 million. The deal agreed this week means the unions will not have to make a contribution.

The details have still to be finalised, but it is understood that any shares already allocated to Eircell personnel under the Eircom ESOT will remain locked in the original ESOT until they can be cashed, which is five years after allocation. The £22 million fund for the Eircell ESOT aims to ensure staff transferring to Vodafone will be no worse off in terms of the value of their ESOT shareholding than if they had stayed with Eircom. They will get shares, probably in Vodafone, equal in value to the additional Eircom shares they would have got had they stayed.