Eircom poised to finalise deal with Vodafone

Eircom is expected to announce today that it has reached agreement with Vodafone over the sale of Eircell for close to €4.5 billion (£3.55 billion).

The price will be below the expected €4.6-€5 billion range, meaning that the 480,000 small investors in the company will not do as well as they originally hoped.

The British group will pay for Eircell with its own shares, with each Eircom shareholder getting roughly one Vodafone share for every two Eircom shares they hold.

Significant falls in the Vodafone share price have driven the price below €4.6 billion.

It is understood the key area of pricing had been resolved last night and talks were continuing this morning to resolve outstanding issues. Barring last minute hitches, the deal should be announced today.

The sale has to be approved at a shareholder meeting which will not be held until next year and shareholders will not get Vodafone shares until then. But they will benefit from any appreciation in the value of Vodafone shares between the time the price is announced and when they get the shares. Vodafone shares fell 3.54 per cent yesterday to 251-1/4p sterling after the British group said it would pay 249 billion yen for a 15 per cent stake in Japan Telecom. It followed a 1 per cent fall on Tuesday linked to general weakness in the telecoms sector.

It is understood that Comsource, the Dutch-Swedish consortium that owns 35 per cent of Eircom, is satisfied with the price, which should see KPN and Telia - the joint venture partners - pocket €945 million and €630 million worth of Vodafone shares respectively.

The issue of Comsource's involvement in Eircom going forward has not been resolved but a buy-back of its shares is unlikely to be part of the deal.

Small shareholders will not do as well as first thought. When the deal was mooted a price of €5.1 billion had been suggested based on the then price of Vodafone shares and the one Vodafone share for every two Eircom shares mechanism.

The value of telecom shares has dropped substantially since news of the talks leaked last October due to concerns over the debt that major telecoms players took on when bidding for third generation mobile licences.

It is understood the price Vodafone is paying is not conditional on Eircell obtaining a third generation licence when they become available later this year. It will also become clear today what deal has been reached by the two companies on the type of mobile products that Eircell will offer.

The completion of the Vodafone deal will allow Eircom executives to focus on a €2.25 billion bid for the fixed line business from a consortium led by Mr Denis O'Brien.