Share sale to trigger payment to Eircom

Telia's sale of its Eircom shares will trigger a payment of €15.5 million to the Irish company in compensation for its withdrawal from the strategic alliance, according to the Eircom flotation prospectus.

This payment would have to be made "in respect of strategic contributions which Telia will not then provide to us under the existing strategic co-operation agreement", the prospectus states.

While this amount represents only about two per cent of the current value of the Telia's stake in Eircom, it would add to the Swedish group's losses on the sale if it had to sell at a price of less than €2.50 per share.

Eircom shares marked time yesterday as it became apparent that there would be no announcement that Telia had agreed to lock-in its 14 per cent stake for a period to facilitate the sale of the KPN stake. The shares rose five cents in early trading from the overnight level of €2.75 to reach €2.80 before drifting back to trade around €2.77. By the close the shares were back at €2.80, up five cents on the day.

Eircom said yesterday that "good progress" has been made in discussions with Telia. "We hope KPN and Telia will soon be able to make their positions clear."

Eircom is adamant that Telia had agreed to sell its shares in a secondary offering with KPN (which owns 21 per cent of Eircom) this summer. The two companies acquired their shares as part of a strategic alliance with the then Telcom Eireann in 1996.

Telia has denied there was an agreement. The resulting uncertainty about such a large block of shares has depressed the Eircom share price.

With KPN keen to proceed with the sale of its shares, Eircom has been trying to get Telia to either sell now or lock-in its shares for an agreed period.

While agreement to sell immediately would be the best result for Eircom's shareholders, a lock-in would help to remove some of the current uncertainty about the shares and allow the KPN sale to proceed.