Esat closes PostGem/IOL deal

ESAT Telecom has confirmed its acquisition of PostGem/Ireland OnLine for £115 million (€146 million). The deal - details of which were reported in yesterday's Irish Times - will make Esat Ireland's biggest Internet service provider.

Despite the 35,000-strong residential subscriber base that IOL brings to the table, the real value of the deal to Esat is PostGem's strong data traffic services business.

Under the arrangement, An Post will take around a 3 per cent stake in Esat Telecom, valued at £24 million (€30.47 million). Esat Telecom says it funded the acquisition with interim financing, but it plans to put in place permanent financing through debt or the issue of shares. Esat Telecom chairman Mr Denis O'Brien said a decision had not yet been reached on what the preferred option would be.

To December 1998, PostGem/ IOL recorded net losses of £200,000 and net liabilities of £6.2 million. In the first six months of this year, the company reported combined revenues of £7.494 million.

The sale price is well ahead of original expectations - IOL was sold to PostGem in late 1996 for a sum thought to be around £2.5 million, including £2 million worth of debt. Last year, reports suggested the IOL part of the business was worth around £15 million, based on customer figures. Eireann Eircom and UUnet, owned by Worldcom. Both Telecom Eireann Eircom and Worldcom are likely to lose PostGem/IOL contracts, valued at several million pounds, as it gradually rolls out its services across Esat's network. Mr O'Brien said Esat was "delighted" with the price tag, and it fitted well with its strategy to establish itself in the data and Internet market. The deal is timely for Esat, following its failure to acquire Cablelink earlier this year.

Mr O'Brien told The Irish Times: "Synergistically, PostGem/ IOL was a better fit than any other business we could buy. We thought the Cablelink price was too high and weren't prepared to bid at that level."

Details of the implications of the sale for PostGem/IOL customers were unavailable yesterday, but IOL subscribers are likely to be offered the services available through Esat's residential Internet service provider, Esat Clear.

Mr O'Brien added there would be "absolutely no possibility of job losses" for the company's 140 employees. And PostGem/IOL managing director Ms Mary Mangan will now take on a role of "enhanced responsibility". Mr John Hynes, chief executive of An Post, said the liberalisation of the telecommunications industry meant PostGem/IOL no longer fitted in with An Post's objectives. "Our core business is being a trusted intermediary in the delivery of messages. The sale will enable us to continue with plans for further infrastructural, technological and business development," Mr Hynes said.

Welcoming the announcement, the Minister for Public Enterprise, Ms O'Rourke, said: "Some or all of the capital proceeds from this sale will allow An Post to achieve its plans for major capital investment, including investment in the rural post office network." She added An Post should take note of the growing trend in Europe towards alliances between postal companies.