Babcock & Brown looks for Eircom bid partners

Australian financiers Babcock & Brown Capital have entered discussions with a number of international investment groups with a view to mounting a joint bid for Eircom, the former State telecommunications company.

The Australians believe that a big international group or a consortium of smaller players would agree to take 30 per cent of the Irish company before or after a deal, market sources said.

Responding to concern that Eircom's network would be downgraded after a deal as new owners sought a short-term financial return, Babcock & Brown's executive director Rob Topfer insisted yesterday that the investment fund would prioritise investment in the network and had a business model that would encourage its development.

"For Eircom to grow with the general economy, expand its services and enter new markets, it will be imperative that it upgrades, extends and improves its network," he said.

"The reality is we've said we want to invest in the future. We believe in the future of telecommunications in Ireland and we're happy to invest in it."

In an Irish Times interview, Mr Topfer said Babcock & Brown was willing to acquire Eircom in its current form but said the "rather more sensible" option was to formally formally split the network division from the retail unit. Such a move had the potential to satisfy the customers, shareholders and staff of Eircom, and the Government and telecoms regulator ComReg.

He said the Eircom network would be open to all telcos, so a division would foster competition.

Babcock & Brown is now Eircom's biggest shareholder after it spent almost €500 million to bring its stake to 23.6 per cent, exceeding the 21.5 per cent held by the Employee Share Ownership Trust (Esot).

If the company can find sellers of Eircom stock at €2.20 per share, it is likely to continue accumulating shares towards the 29.9 per cent threshold that would trigger a mandatory bid. The share closed last night at €2.20, the maximum price at which the Babcock & Brown has bought the stock.

While the fund needs the co-operation of the Esot to execute a deal, it is discussing the possibility of a joint bid with other investors or an agreement to open a big stake in Eircom immediately after a deal.

The market sources did not reveal the identity of the groups that had entered discussions with Babcock & Brown. At least some of the groups are likely to be in the private equity sector, where money for transactions is in plentiful supply.

The €10.19 billion takeover of Danish telecoms group TDC three months ago by a consortium of five private equity groups - Permira Advisers, Apax Partners, the Blackstone Group, Kohlberg Kravis Roberts and Providence Equity Partners - is evidence of the sector's interest in telecoms.

Australian aims to transform market, page 6