Buyout no sign of early Eircom sale, says fund

THE AUSTRALIAN fund that controls Eircom has indicated it is not contemplating any immediate sale of the telecoms company or its assets after it decided to buy out half its shareholders. Arthur Beesley, Senior Business Correspondent, reports.

In a move seen as a response to a hedge fund investor that called for the flotation or sale of Eircom to help fund a return of money to shareholders, Babcock & Brown Capital said it would avoid making new investments and use more than $300 million Australian dollars (€187.05 million) to buy back up to 50 per cent of its shares.

The development marks a fundamental change in the strategic direction of the fund, which owns 57 per cent of Eircom and whose only other investment is ownership of the Golden Pages directory in Israel.

The fund signalled in December that it had formally allocated A$445 million (€277 million) to pursue "specific identified investments", but a spokesman insisted there was no U-turn and cited difficulties in the market due to the credit crunch.

"Given this volatility and in the current share price versus the value of the underlying portfolio, the buyback is in the best interests of shareholders and the best way to deliver value," he said.

While Babcock's plans to split Eircom's network business from its retail division have not advanced as rapidly as some close observers expected, a fund director who sits on the telco's board raised the prospect of selling the business to a European incumbent telco in the medium term as an alternative to the split.

Rob Topfer, the banker who orchestrated Babcock's takeover of Eircom in 2006, was speaking as the company reported a 7 per cent rise to €346 million in earnings before interest tax depreciation and amortisation (Ebitda) in the first half of its fiscal year when once-off items were excluded.

The performance was driven by a rise to 962,000 in the number of subscribers in Eircom's mobile unit, Meteor, and an increase in its half-year Ebitda to €54 million from €25 million in 2006.

"The directors are very mindful that there is substantial value to be created in the medium term out of Eircom and Golden Pages. They are not contemplating a sale of those assets. They are contemplating a return of the free cash," Mr Topfer said on a conference call for investors.

"The reality is the optimisation of Eircom in terms of Ebitda is at 2011, something like that. Query when . . . and if, you would realise at that point is a question of where debt markets are, where equity capital markets are, and where the private equity funds are at. And probably more importantly I think in relation to this asset than anything is, where the synergy buyers are around the incumbents around Europe, the aggressive incumbents around Europe.

"That's one side of the deal and that's always been the integrated side of the deal. The other value that we'd have always been looking for if we could realise it as well, is obviously around some form of rerating that may come from a play around aggressive expansion into NGN [ net generation networks] and separation."