Esat yesterday asked its shareholders to reject the Telia/Telenor bid as "derisory" and "wholly inadequate". In its defence document, the company carefully avoided any reference to a "white knight" bid, but stressed management's commitment to "shareholder value".
Analysts said the vigorous tone of the paper was well rooted in telecommunications industry reason. Central to Esat's defence is the notion that companies in the sector can be worth up to 20 times annual revenues.
The central argument of the document is that the $72 (€71) per share - a total of €1.58 billion (£1.24 billion) - offered by the Scandinavian "Newtel" was not nearly enough.
"Newtel's offer woefully undervalues Esat Telecom," it tells shareholders. "The offer does not reflect the value of Esat Telecom's market position, growth and strategy."
Esat describes itself as "a rarity in the European telecoms market", pointing out that it combines local exchange, Internet, data and mobile assets in a single entity. It says management has delivered a 400 per cent growth in the share price since the flotation in 1997, and that its operating fundamentals have "never been stronger".
The document also stresses the company's commitment to electronic commerce, which it views as likely to be a high-growth area in future years.
Shareholders will already be aware of the high valuations placed by the financial markets on telecommunications companies, ranging from 10 to 20 times revenues. Esat's unstated premise is that it is undervalued on this basis.
Last night, some analysts agreed with this argument, saying that, even allowing a 30 per cent discount for Esat Digifone due to the 49.5 per cent which is already owned by Newtel, Esat could be valued at at least €90 a share.
But other observers said this reasoning was undermined somewhat by a paragraph buried deep in the defence document: On November 10th, Esat's compensation committee said the company's chairman and chief executive, Mr Denis O'Brien, should receive a $2.5 million reward bonus if the Esat were sold for more than $1.1 billion. The Newtel offer values the company at $1.59 billion.
Newtel issued a terse statement last night, saying only that it took issue with some of the document and would write to shareholders soon. There was no indication as to whether it would raise its bid.
For their part, Esat executives were reticent on the approaches the company has had from other potential suitors. Industry sources say several large US and European firms are "having a look" at the firm.
Newtel would like to believe that the longer it takes Esat to find a `'white knight", the greater the chances of the bid. But analysts say confidence in the Nordic firm is being eroded by the unseemly squabbles between its Norwegian and Swedish executives.
One aspect of the Newtel bid being monitored closely by the financial markets is the role of British Telecom (BT). If BT does not make a move on Esat, investors may conclude it is actually interested in Eircom, boosting the former State operator's low share price.
