Eircom shares unresponsive to take-over of competitor

The take-over of its biggest domestic competitor by one of the world's biggest telecom companies had a negligible impact on Eircom shares yesterday. On the Dublin market, the shares traded up 10 cents to €4.10 (£3.23) - this compares to the July flotation price of €3.90 (£3.07).

BT, which is offering £1.9 billion for Esat, has long been mooted as a potential bidder for Eircom. But BT chairman Sir Iain Vallance indicated yesterday that BT was never likely to bid for Eircom. "Our strategy in Europe is to invest in challengers to incumbent telecom companies because of their greater growth opportunities. Esat falls into that category," he said.

Eircom's protection from take-over expires next Friday and BT had been suggested as one likely bidder. But market sources believe that it is far more likely that if Eircom is to attract a bidder, then that bidder is will come from the United States. "The American are looking at consolidation opportunities in Europe," said one source, who added that despite the current uncertainty the 14 per cent stake held by Swedish telecoms group Telia will almost certainly be sold.

The top-of-the-range price that BT is offering for Esat does, however, underpin Eircom shares and some market players believe that the valuation placed on Esat should translate into a substantially higher price for Eircom shares, even though Esat is seen as having far greater growth prospects than Eircom.

BT has been careful not to break down the €2.5 billion (£1.9 billion) it is offering for Esat between Esat's fixed-line and mobile business. But analysts believe that at least two-thirds of that price is in respect of Esat's interest in mobile phone operator Esat Digifone. "If you use those sort of valuations per customer and assume the same sort of growth as Digifone, then it puts a value on Eircell of €6.5 billion (£5.1 billion) and ascribes very little value to Eircom's other business," said one source.

In its home market, Eircom, however, will now have to face even more aggressive competition from the BT-owned Esat, which has set itself the target of getting half of the Irish telecoms market within the next three years.

Esat chairman Denis O'Brien said yesterday that the aim is to boost Digifone's market share from 42 per cent to 50 per cent, carve out 50 per cent of the Internet business and increase its current 20 per cent of data transmission business. Some of that targeted growth will probably come from new business, but if those targets are reached, analysts believe that it can come through, taking business directly from Eircom and its subsidiaries.