EIsland may pay over #3 billion to acquire Eircom

EIsland has said it may increase its #3 billion (£2.35 billion) offer for Eircom if - as expected - Valentia Telecommunications tries to outbid it in the next few days.

Mr Denis O'Brien, the chairman of eIsland, said yesterday that after courting the former Telecom Eireann for eight months he would not rule anything out. "We would have to consider anything," he said. Valentia is expected to make its intentions clear by Monday week.

The buyout grouping, which is chaired by Sir Anthony O'Reilly, has indicated its intention to bid #1.27 per share, nine cents less than eIsland's current offer.

Valentia has tied in both major shareholders, Comsource which owns 35 per cent and the Employee Share Ownership Trust (ESOT) which has 15 per cent.

Comsource, a joint venture between KPN of Holland and Telia of Sweden, can switch its support to eIsland if Valentia does not match the higher offer within 14 days of last Monday, making it likely that Valentia will launch a higher offer in the next few days.

Mr O'Brien has now indicated this might lead to a further bid from eIsland, but he will still not be sure of the support of Comsource.

It is understood the agreement between Valentia and Comsource allows the consortium to match any subsequent bid by eIsland. Mr O'Brien gave details of the corporate governance structure that eIsland will put in place if successful.

It will offer the ESOT three seats on the board and Mr O'Brien and his associates will have five.

Spectrum Equity Investors, the US venture capital fund led by Mr William Collatos, is backing eIsland and will have an additional five seats. It was also confirmed that Mr O'Brien will be the chairman and chief executive officer of the company.

"The ESOT will have meaningful participation in decision making," said Mr O'Brien.

He added he was confident the trustees of the ESOT could be persuaded to switch their support to eIsland.

He was speaking ahead of the result of the ballot of ESOT members which endorsed the trustees' support for Valentia last night. The eIsland chairman highlighted the fact that 30 per cent of the ESOT beneficiaries were no longer working for Eircom, and would find the eIsland offer more appealing.

Mr O'Brien's consortium is offering the ESOT the opportunity to buy 29.9 per cent of Eircom for #180 million and says the trust will have to commit #361 million to Valentia to obtain the same position.

The difference could be distributed tax free to the 13,000 ESOT members and is the equivalent of #20,000 per member, he said.

"Why would they [the ESOT] pay more for the same ownership position?" he asked. Mr O'Brien used yesterday's press conference to send a message to the ESOT.

"We have the right credentials for taking a business and enhancing its value over a relatively short period of time," he said.

"Our model for Eircom is a growth model via a sales driven approach. We want to grow sales by more than GDP growth which is currently 7 per cent," said Mr O'Brien.

Mr Padraig O hUiginn, the former senior civil servant and member of the eIsland board, said the consortium had made it clear to the ESOT trustees that no job cuts were planned beyond those already agreed with the current management.