Esot and fund to bid for Eircom

The Employee Share Ownership Trust (Esot) at Eircom is to team up with Babcock & Brown Capital to make a joint offer for the company.

The offer, which is expected early next week, is likely to come at €2.20, subject to Babcock & Brown completing due diligence to its satisfaction and to full financing being in place.

Eircom is thought to be ready to recommend a deal at the €2.20 level, which would give shareholders a 48 per cent return on the €1.55 they paid when the firm listed for a second time in 2004.

This return, which takes account of the €423 million rights issue Eircom completed to pay for Meteor last year, includes dividends. Babcock is also set to pay a 5.2 cent dividend already expected by shareholders.

An offer at €2.20 would value the company at about €2.36 billion.

Together, Babcock and the staff-controlled Esot control 50.3 per cent of Eircom. This makes the grouping the dominant force on the shareholder register regardless of how Eircom reacts to its approach.

The Australian investment fund, which has 28.8 per cent of Eircom on its own, is thought to have had finance in place for a takeover for some time.

It is unclear, however, how the Esot will contribute, if at all, to the cost of the deal. Equally uncertain at this stage is how Babcock will address the taxation concerns that are likely to be worrying the trust's members.

It will not be possible to offer any special structure or mechanism to the Esot unless this is also offered to the remaining Eircom shareholders.

One source said earlier this week that the two parties had reached "a meeting of minds" on the issue.

Eircom discussed the latest development at a board meeting last Tuesday. Even though the joint offerors control the majority of the company, a board recommendation will ease the path to a takeover.

At €2.20, the price Babcock and the Esot are prepared to offer is significantly below the €2.40-plus that Eircom was ready to accept from Swisscom last year.

That deal collapsed after the Swiss government blocked Swisscom from completing it.

Babcock began to buy shares in Eircom late last year and made an approach in February. The fund has been ready to move with an offer for some time, and successful discussions with advisers to the Esot have simply cemented this.

Babcock's executive director Rob Topfer, has insisted that it will prioritise investment in Eircom's network if a takeover is successful.