Eircom to join markets today at €1.55 a share

Eircom is expected to join the Dublin and London stock markets today at a price of €1.55 per share after the firm's board gave it a market capitalisation of €1.1 billion late last night.

Market sources said the telecommunications firm's initial public offering (IPO) had attracted a high degree of interest at this level, which was at the lower end of an indicative range set by the company.

Demand is reported to have outstripped supply by around two times.

Irish fund managers investing in the firm include Bank of Ireland Asset Management, AIB Investment Managers, Irish Life Investment Managers and Hibernian Investment Managers.

Pioneer Investment Management, an investment house based in Dublin's International Financial Services Centre, has also participated.

It is thought that Irish institutions have, between them, taken up about 20 per cent of the shares made available under the IPO.

US investment houses known to have taken an allocation include Wellington and Putnam.

The offering is also likely to have attracted the attention of hedge funds, although the level of ownership allocated to such buyers may have been deliberately limited.

Conditional trade in the shares is due to begin this afternoon.

The strong demand for Eircom's offering reflects in part the generous dividend that the company used to underpin its flotation.

At a price of €1.55, the dividend yield will stand at about 7 per cent.

This return will have appealed to institutions and private individuals, although only those private investors with €40,000 to spend were allowed to participate in the IPO.

One source reported solid demand from "high net worth" individuals, who will have compared the 7 per cent yield with the low returns currently available on deposit accounts and the availability of cheap borrowing.

The Irish co-managers of the flotation - Davy Stockbrokers, Goodbody Stockbrokers and Merrion Stockbrokers - were only offering the investment opportunity to their private clients.

NCB, the only Irish stockbroker that was free to publish research on Eircom in the IPO period, has pointed to the "limited" share price appreciation that Eircom is likely to achieve after the IPO.

About 70 per cent of the firm is being sold under the flotation, with 30 per cent to be retained by the Employee Share Ownership Trust.

The employee trust will pay some €82 million to ensure that its holding is not overly diluted after the process.

The other main shareholders are selling the bulk of their shares, with Sir Anthony O'Reilly electing to sell off his entire holding in the IPO.

Sir Anthony's shares are worth some €43.5 million at a share price of €1.55.

This compares to his initial investment of €25 million, with the increase coming on top of a €10 million dividend paid to him by Eircom last year.

The Commission for Communications Regulation (ComReg) began a process yesterday which will determine the price that rivals will pay Eircom to provide services over its telephone network.

These access costs are crucial for the roll-out of broadband as they are ultimately passed on to Eircom's rivals in the fees that they pay to provide services using Eircom's network.