Eircom to seek price rise for Swisscom exclusivity

The Eircom board is finalising its response to Swisscom's request for exclusive access to the telco's books for a due diligence exercise in advance of a takeover.

While Eircom is more than willing to entertain the notion of a takeover, it wants to extract a higher price from the Swiss-government controlled telco. In a "counter-proposal" likely to be sent to Swisscom's advisers today or tomorrow, Eircom is likely to demand as a condition of exclusivity that the Swiss group increases the indicative price per share that it would pay.

Some in Eircom believe that Swisscom would ultimately pay in excess of €2.40 per share for the company. However, the price that the Swiss set out in their preliminary approach to Eircom fell somewhat short of that level. Eircom gained 1.73 per cent to close at €2.37 in Dublin last night.

The Swiss are not noted to be aggressively acquisitive and they have been burned in the past 18 months by their failure to execute well-publicised takeover attempts in Austria and the Czech Republic.

In view of that, Eircom will attempt to push the process forward by responding quickly to Swisscom.

The most likely scenario is that Eircom would reject the initial price as too low.

But at the same time, Eircom would attempt to encourage the Swiss to step forward with a renewed approach by holding out the prospect of exclusivity in return for a "more serious" offer.

Because bidders rarely declare their hand in the initial stage of a sale, Swisscom would be expected in its response to Eircom to take the opportunity to increase the indicative offer.

What remains to be seen is the size of any increase. Alternatively, Swisscom could threaten to withdraw its initial bid if exclusivity is not granted.

Whatever response Swisscom makes, Eircom's directors will then be obliged to decide whether to grant exclusivity and allow Swisscom's advisers to start due diligence.

Eircom's directors, chaired by the businessman Sir Anthony O'Reilly, have been in regular contact with each other since the preliminary offer was received. Despite their unhappiness at the initial price offer, they are considered by some market sources to be prepared to sell at what they consider to be the right price.

While there remains a possibility that a rival bid will emerge, Citigroup said last week this was less likely because of Eircom's heavy debts and because its previous owners have already extracted all the readily-available efficiencies.

This would tend to depress the price that a buyer would pay for Eircom. But if the Swiss were encouraged to pay a tough game by the absence of rivals, some market insiders believe it might pay marginally more to be sure of a deal because it is keen to avoid failure in a third high-profile potential transaction.