Vodafone deal seen as broadly beneficial for shareholders

The Vodafone offer for Eircell will release significant value to Eircom shareholders, chairman Ray MacSharry told an extraordinary meeting of the group yesterday.

As well as allowing them to benefit from Eircell's leading position in the Irish market, it will give them shares in the world's largest mobile phone company.

Mr MacSharry said that Eircell was constrained in terms of its ability to expand outside its domestic market. Meanwhile, the mobile phone industry was becoming increasingly globalised with a small number of large players dominating the industry.

"Against this background of globalisation and given the additional challenges of increasing competition and technological change, we are strongly of the view that combining Eircell with Vodafone's strength and global reach should enhance Eircell's ability to meet its longer term strategic challenges," he said.

Among the benefits the link-up would offer Eircell was a greater ability to offer an all-Ireland and pan-European service, access to Vodafone's products and services and its strong relationships with similar companies around the world.

Mr MacSharry defended the decision to go ahead with the sale of Eircell to Vodafone although the latter's share price has fallen below the level which would have triggered an opt-out clause.

Mr MacSharry said the purpose of this option was to cater for a situation where the Vodafone share price fell for negative reasons associated with the company.

"The board and our financial advisers believe that this is not the case and that the drop in the Vodafone share price has been accompanied by a fall in share prices within the telecommunications sector generally."

While negotiations were progressing with Vodafone, Eircom undertook an extensive review of its business and has refocused its strategy as a result, Mr MacSharry said.

Among the changes it was making was a scaling back of its international and multimedia activities and a reduction in capital expenditure to around 25 per cent of revenue.

The group is also accelerating the pace of cost reduction and streamlining its management and operating structures.

Mr MacSharry told shareholders that the company without Eircell "is a very substantial business, a very valuable and highly profitable business".

Revenue for the year ended March 31st, 2001 is expected to be €1.7 billion and earnings before interest, tax, depreciation and amortisation will be €445 million.

However, he declined to comment in detail on the interest expressed by three consortia in buying what remains of Eircom because of stock exchange and takeover rules. But he assured shareholders the board would not recommend any offer unless "we are satisfied, having received advice from our financial advisers, that it is in the best interest of shareholders".