Esat staff to receive fewer share options than expected

Up to 130 staff at Esat Telecom are to receive fewer share options than expected following Telenor's $1.9 billion (€1.84 billion) hostile takeover bid for the company.

The employees, who had been part of PostGem/IOL, which Esat bought last September, had been promised lucrative share options as part of that deal. However, since the Telenor approach, Esat's shares have more than doubled. Effectively, it means that although the employees will get shares to a certain value, they will not get the same number of shares and the potential longer-term gains involved will diminish as a result.

It is understood that the matter has caused some concern among Esat's new recruits, who have watched in dismay as Esat's share price has climbed in recent weeks.

Last September, Esat agreed to buy Postgem/IOL, a subsidiary of An Post, for £115 million (€146 million), a price which stunned the market at the time but which also made Esat the Republic's biggest Internet service provider. The deal also involved An Post getting a 3 per cent stake in Esat Telecom, then valued at £24 million and now valued at £51 million.

At the time, An Post was paying $40.46 per American Depository Receipt (ADR), each of which is worth two ordinary shares. Last night, the shares were trading at around $89 per ADR.

Although staff may have thought they would get a certain amount of shares at around this price per share, this is not the case. A deal was put in place following talks between An Post executives and employees to ensure that the staff would transfer to Esat and remain for a certain period. An amount of money was set aside for an employee share option plan (ESOP) and staff were given an upfront payment, of which 60 per cent was payable immediately and 40 per cent after one year.

It is unclear how much was involved overall in terms of cash and share options. This is because the deals were done with individuals and the amount of actual cash paid depended on length of service, according to sources close to the group.

Although An Post and Esat agreed the PostGem/IOL deal last September, it was not finally concluded until November. An Esat spokesman said last night that the ESOP was still awaiting Revenue Commissioners' approval - this had to be sought because it involved paying monies in a tax-efficient manner.

He confirmed that if the Revenue approved the deal tomorrow, staff would be able to buy shares at this evening's closing price. He said Esat sympathised with staff, but the situation was beyond its control. He added that staff would still get shares to the same value, but obviously they would not get as many as they would if Esat's share price was lower.

"Esat would love to have locked in to a fixed price, say last September, but this was not possible because it needed Revenue approval," he said.