Eircom defends €4.5bn price tag Vodafone pins on Eircell


Eircom management has defended the lower than expected price obtained for Eircell, saying that it has succeeded in unlocking the value in the company's poorly performing shares.

The €4.5 billion (£3.5 billion) price is significantly less than the €5.1 billion suggested earlier this year. The deal is the equivalent of €3,600 for every one of Eircell's 1.23 million customers. Voda fone said yesterday that this was €200 per customer less than it paid for Swisscom Mobile, the Swiss mobile business, during the summer. Mr Ray MacSharry, the Eircom chairman, said that the deal was a good one and unanimously endorsed by the board. He said it was - to the best of his knowledge - the first time an incumbent phone company in Europe had demerged its mobile arm.

"The Eircom board believes the Vodafone offer is in the best interest of shareholders and the business itself," he said.

The €4.5 billion price represents significant value when compared with the €5.4 billion price put on the whole company by the market prior to the news of the Vodafone talks leaking, said Mr Alfie Kane, the company chief executive. Eircom shareholders will get 0.9478 of a Vodafone share for every two Eircell shares they hold following the demerger. This equates to €1.84 per Eircom share at last night's prices and euro/sterling exchange rate. The actual cash value of the sale will depend on the Vodafone share price on the day the deal closes, which is expected to be within days of shareholders giving their approval at a meeting next March, said Mr Julian Horn-Smith, an executive director of Vodafone.

The deal has been structured in a way that allows Eircom to walk away if the Vodafone price falls to £2.20 sterling (€3.55) at any stage before shareholders approve the deal. Vodafone's lowest price of the year was close to £2.20 sterling but the average price during the course of the talks with Eircom has been £2.60 sterling.

Mr Horn-Smith said that Eircom shareholders stood to gain significantly if Vodafone shares appreciated during the next two and a half months. They also had the option of selling their Eircom shares now if they were concerned that the value would fall.

A low-cost dealing service will be established to allow Eircom shareholders to sell their Vodafone shares once they receive them, but there are no plans at present to take a listing in Dublin in order to facilitate Irish shareholders.

Mr Kane outlined his strategy for Eircom going forward yesterday and denied that the company was in the process of being broken up. Any offers for all or part of the existing business would be responded to professionally but there was "no definite and defined strategy to break up the business", he said. Mr MacSharry left the door open for further disposal, saying that the "the overriding priority will be to maximise value for shareholders".

The company will refocus itself as a provider of fixed, data, multimedia and e-commerce services. Under the terms of the sale Eircom cannot compete with Eircell in the mobile market for three years. The two companies will have an ongoing relationship which might involve Eircom reselling Eircell services, said Mr Kane.

The non-compete agreement will apply even if there is a change of control at Eircom or a significant part of its business. Mr Kane conceded the agreement will have a significant impact on the value of the ongoing business which is being eyed by a number of possible bidders. One of these bidders - the eIsland consortium led by Mr Denis O'Brien - was rebuffed yesterday but is expected to improve on its €2.25 billion offer in the new year.

Mr Kane also announced Eircom was ending its strategic co-operation agreement with KPN, the Dutch member of the Com source alliance that owns 35 per cent of Eircom. Telia, the junior member of the alliance ended its agreement last year.