Babcock in 'informal' talks about Eircom sale

TROUBLED AUSTRALIAN investment group Babcock Brown, which this week overhauled its senior management team, is believed to have sounded out senior financiers about the possibility of putting Eircom back on the market.

A number of sources said "informal" contact had been made by Babcock in relation to generating some corporate activity around Eircom.

"Contact has been made in the past two or three days by Babcock," one reliable source told The Irish Times. "It's all very informal at this stage and they're suggesting that there might be an opportunity around Eircom."

It is understood that approaches have been made to financiers in Dublin, London and other financial centres in Europe.

A spokesman for Babcock Brown in London denied that the group was seeking to offload Eircom. A spokesman for Eircom said recent events at Babcock Brown were having "no impact on Eircom operationally".

While Babcock Brown does not own Eircom directly, it exercises considerable influence.

Eircom is directly controlled by Babcock Brown Capital (BCM), a satellite fund of the Australian investment group. BCM owns a majority stake in the Irish telco.

BCM has two assets - Eircom and the Golden Pages in Israel. Babcock Brown has an 8 per cent stake in BCM and is believed to get up to €10 million a year in management fees from Eircom.

Generating some corporate activity around Eircom could potentially generate a hefty fee for Babcock Brown, which has seen investor confidence collapse this year.

The Australian company's first half net profits fell by 34 per cent to A$211 million (€123 million) and the company is set to sack a quarter of its 1,600 staff.

The company's market capitalisation has collapsed due to the effects of the credit crunch. Its shares have lost about 94 per cent of their value over the past 15 months.

"It's been a victim of the credit crunch and I've no doubt this is the beginning of the end of its involvement with Eircom," said one senior source close to the Irish telco.

Selling Eircom would not be easy in the current climate. The credit crunch has resulted in a scarcity of funding and taken a number of potential financial buyers out of the market.

Eircom is also saddled with debts of €4.2 billion, although much of this is not due to mature for a number of years.

While the company dominates in the Irish fixed telephone market, the sector is declining as mobile and broadband have grown in importance. Its network also needs significant investment.

Babcock has achieved about half of the 900 voluntary job cuts it is seeking at Eircom and has offloaded the telco's masts business. It also hopes to sell 10 properties for about €125 million.

A plan to separate the retail and network divisions has stalled due to regulatory opposition.

Eircom's main source of growth is Meteor, Ireland's third biggest mobile player, valued at more than €1 billion by BCM. The business was acquired by Eircom in 2005 for €420 million.