Vodafone drops to third place in FTSE

Vodafone has dropped to third spot in the FTSE 100 rankings just over a week after surrendering its position as Britain's biggest company.

Shares in the mobile company - which is buying Eircell from Eircom - closed at 182p sterling last night, a drop of almost 1 per cent on the day. Based on last night's closing price, the all-share offer from Vodafone for Eircell was worth 135 cents per Eircom share. This is 50 cents less than the deal was worth when the sale was announced before Christmas. Sources close to the Eircom board said they were concerned about the fall in Vodafone shares and were keeping the matter under review. If the average Vodafone share price in the 10 days leading up to the shareholder meeting needed to approve the deal is less than 220p sterling, Eircom can walk away from the deal without incurring penalties. The meeting was due to be called towards the end of this month, but is now not expected to occur until mid-April. The delay has been attributed to slow progress in the negotiation of commercial agreements between Eircom and the demerged Eircell, including the ownership of mobile phone mast sites. Corporate finance sources said yesterday the Vodafone deal still represented good value in the context of the overall decline in the telecom sector. The deal works out at #2,200 per customer based on Vodafone's current valuation.

Although this is substantially less than the #3,300 value put on the deal originally, it still represents a 70 per cent premium to the average industry value. The latest sell-off of Vodafone shares left it below drug company GlaxoSmithKline and oil company BP Amoco, which grabbed the top slot in Britain's corporate league table early last week. Vodafone comprised 8.59 per cent of the FTSE 100 at Thursday's close, a dramatic de-rating since the stock took a weighting of as much as 16 per cent in the immediate aftermath of its mammoth acquisition of Germany's Mannesmann early last year.

"That's amazing, the other two are good stocks in their own right but it's very very interesting the way Vodafone has gone because a few months ago you would have thought no-one could ever overtake it," said a senior dealer at one brokerage.

The decline in Vodafone in part reflects a deterioration in technology and telecom stocks across the board, but has been hastened by concerns about valuations in the sector and by obstacles to the planned $11 billion sale of Italian fixed-line operator Infostrada.