Eircom share plan to benefit managers if Eircell deal succeeds

Eircom's share option scheme will be revised in the management's favour if the sale of Eircell to Vodafone goes through.

The minimum option price of €3 announced at the company's annual general meeting last month will be reduced, probably to the market price of Eircom shares once the Vodafone deal goes through, according to a company source.

Management will get share options for the first time next month when Eircom announces its half year results. The main beneficiary will be Mr Alfie Kane, the chief executive, who could get options worth more than £1 million (€1.27 million).

The Eircell sale, if it goes ahead, is unlikely to be completed until the end of the year as it will require shareholder approval. All options granted up to that point will be repriced, predicted the source. The new price will depend on the value set for Eircom by the market after the sale. It would be about €1.90 at today's prices.

Repricing the options would be a considerable fillip for the 400 or so managers eligible for the scheme. Option holders only make money on their options if the share price exceeds the option price and at present there is little prospect of Eircom shares significantly exceeding €3. Even the prospect of a sale of Eircell has failed to push them beyond €3.

Eircom's chairman, Mr Ray MacSharry, made it clear at last month's a.g.m. that only the "minimum number" of options would be granted at €3.

There is considerable pressure for most of the options to be granted in excess of the €3.90 share price at which Eircom was floated last year.

Eircom shares closed up 18 cents on €2.77 yesterday with strong demand on the Dublin market yesterday following yesterday's report in The Irish Times that Vodafone may be willing to offer one of its own shares for every two shares of the demerged Eircell.

Turnover was 6.5 million shares, much higher than the usual daily turnover in Eircom and reflecting the renewed demand for the shares.

At Vodafone's current price in the market, this ascribes a value of more than €2.30 on each demerged Eircell share or more than €5 billion for the entire company.

Previously, analysts had expected Vodafone might offer two of its own shares for every five Eircell, but informed sources have indicated that the British telecoms giant is willing to swap shares on a one-for-two basis.

This, however, could conceivably change if the Vodafone share price continues to rise - the higher Vodafone shares go then the higher the value that will be placed on Eircell shares.

How far its shares would have to rise before Vodafone felt required to alter the one-for-two swap offer is open to speculation. But whatever the size of the share swap the level of dilution that will be suffered by Vodafone shareholders would still be minute with Eircell little more than 2 per cent the size of the British group.