Esat share price up on acquisition of PostGem/IOL

Esat Telecom is expected to announce today its acquisition of the An Post subsidiary, Internet service provider PostGem/Ireland On-Line.

The long-awaited decision on the future of PostGem/IOL will be welcomed by An Post, as the subsidiary has been losing value and market share since the introduction of free Internet services here.

Last night, a spokesman for An Post had no comment to make on the deal, and an Esat spokesman could not confirm or deny the move.

On the stock exchange, however, there was marked interest from the US, where Esat's shares on the Nasdaq rose sharply by $2.88 (€2.71) to close at $42.75. The share did not trade in Dublin.

The final purchase price of PostGem/IOL has not been disclosed, but industry speculation has ranged between £30 million (€38.09 million) and £50 million.

In June, PostGem/IOL hired US investment advisers Hambrecht & Quest to assess its strategic future and issue a detailed prospectus to 20 Irish and international telecoms and multimedia companies.

At the time, NTL Cabletel, Esat Telecom and Independent News and Media emerged as frontrunners for the company.

The Irish Times has learned that Esat Telecom took the unusual move of signing a three-month exclusivity deal to negotiate with An Post several weeks ago.

This may be construed as a coup for Esat Telecom in beating off the competition before the real haggling began.

However, PostGem/IOL, which has a residential customer base of around 30,000 people for Internet services, has started to suffer in the wake of moves by other ISPs to offer free Internet access.

One industry observer suggested that the exclusivity deal may have been initiated by An Post in an effort to lock a single bidder into the process before PostGem/IOL lost any further value.

Esat Telecom is likely to be happy with the acquisition since PostGem, the business ISP arm of the company, will complement Esat Net, which is making steady ground as the Republic's leading commercial ISP.

IOL is an entirely different proposition, but it will help to boost numbers of subscribers to Esat's residential Internet service, Esat Clear.

Because PostGem/IOL's service is operated through leased lines from Telecom Eireann, the attractiveness of the proposition for other bidders was less compelling. It would be as easy, and less costly, for them to initiate their own ISPs.

Esat Telecom, however, will be able to route the PostGem/IOL customers through its own network. Esat Net will welcome the strong data business offered by PostGem, and it will benefit considerably from the lottery and social welfare contracts the acquisition will bring.

Earlier this year, PostGem/IOL was estimated to hold around 35 per cent of the Irish Internet market, with Telecom Eireann's Indigo and Tinet not far behind. However, the recent launch of free Internet services by Ocean, Gateway, Indigo and Esat is bound to have eroded this position.