Eircom will ask O'Reilly to up bid

Eircom is expected to hold discussions with Sir Anthony O'Reilly's Valentia consortium this morning ahead of a crucial board meeting tomorrow.

It is thought the former State monopoly will inquire whether Valentia is willing to increase its bid for the company, which is currently believed to be valued at #1.19-#1.20 per share, including dividends.

The talks follow an agreement Valentia reached last Friday with the Employee Share Ownership Trust at Eircom in which it agreed to grant an additional 15 per cent of the company to workers if its bid is successful.

The eIsland consortium, led by Esat's founder Mr Denis O'Brien, this weekend increased its offer to #1.241 per share from #1.20, including dividends. That offer was made after trading ceased on Friday - it valued the company at #2.74 billion (£2.16 billion).

Valentia and eIsland remain the only two groups that have submitted firm bids for Eircom.

However, it has emerged that a New York investment bank, Blackstone, signalled interest in a possible bid for Eircom last Thursday. Its contact was made in London with the Irish company's corporate finance advisers, Merrill Lynch.

Though International Investment and Underwriting has signalled an interest, no firm bid has emerged from the group controlled by businessman Mr Dermot Desmond. Neither has a firm bid emerged from the US buy-out specialist, Kohlberg Kravis Roberts, which has also expressed interest.

The Valentia deal would bring the trust's stake in the company to 29.9 per cent, though it is unclear how the stake would be financed. At Friday's closing price of 118 cents, 15 per cent of Eircom was worth #390 million.

Sources familiar with the scene said it would be open to the trust to finance such a deal with the proceeds of shares in Vodafone which it acquired when the British group purchased Eircom's mobile phone subsidiary, Eircell. An alternative is to raise bank debt.

Because the trust already owns 14.9 per cent of Eircom, its support is critical to the prospects of any bid for the company, which requires support from 80 per cent of shareholders to be successful.

Valentia's members include the billionaire financier Mr George Soros and the venture capital houses Provident Equity, Warburg Pincus and Goldman Sachs. Sources said the effect of the deal on Friday was to establish Valentia as the trust's preferred bidder.

It is thought the deal is not binding in law because it would require the support of a vote by the members of the trust. The trust's chairman, Mr Con Scanlon, yesterday declined to comment.

It is believed, however, that the trust met eIsland yesterday. Mr O'Brien's group has offered to increase the trust's stake to 24.9 per cent if its bid is successful.