Babcock encourages lead adviser to sell Eircom

BABCOCK BROWN Capital (BCM), the Australian investment fund that controls Eircom, has incentivised its lead corporate finance adviser to execute a sale of the fund or the telco within 18 months.

After rejecting a revised non-binding indicative takeover proposal last Friday from Isle of Man fund LIT plc without going to shareholders, BCM initiated a formal review process yesterday to "further consider a number of approaches".

Although BCM declined to provide any further details on such approaches, it indicated in clear terms that it was open to the possibility of putting other takeover proposals to its investors. Any sale of the fund or Eircom would bring about the telco's fifth change of ownership in less than a decade.

With informed sources stating for months that Eircom or the fund was soon likely to come on the block, the development stands as BCM's first public acknowledgement that a change of ownership is on the cards.

Although the fund and its directors have previously stressed that they were long-term investors in Eircom, BCM chairman Kerry Roxburgh said in a statement yesterday that the review process may deliver "superior value" to BCM shareholders.

BCM shares - down more than 63 per cent in the past 12 months - closed 3 per cent higher at Aus$1.74 in Sydney after the fund declared its intention to return A$100.7 million (€52.78 million) or 60 cent per share to investors.

The fund has also proposed the cessation of the arrangement under which its ultimate parent and corporate finance adviser - troubled investment bank Babcock Brown - manages its assets.

The cessation arrangements, which are subject to shareholder approval, will cost A$32.5 million upfront.

In addition, they incentivise the bank to execute a sale of the fund or Eircom by the end of April 2010.

This aspect of the proposal allows for payment of a further A$12.5 million for termination of Babcock's mandate as BCM's preferred corporate financier "conditional upon a change of control occurring in BCM (or Eircom)" in that timeframe.

It allows for payment of a further A$5 million to Babcock for advisory services related to BCM's review process, "conditional upon a change of control occurring in BCM (or Eircom)" in the same period.

"The directors have also commenced a formal process to further consider a number of approaches received to date by BCM and its advisors, as well as any future bona fide third party proposals that may be received.

"Proposals of this nature may result in a change of control for BCM," the BCM statement said.

"In the event that the directors consider a proposal is in the best interests of BCM shareholders, the directors may put that proposal to shareholders.

"However, the BCM board will be under no obligation to act on, or accept, any proposal which is received, and can give no assurance that any transaction will eventuate."

BCM's advisers in this process will be UBS and Babcock.