There may have been only two bids on the table at last night's Eircom board meeting but industry analysts point out that the takeover battle is not necessarily a two-horse race between Mr Denis O'Brien's eIsland consortium and the Valentia investment banking consortium headed by Sir Anthony O'Reilly.
Market sources have not ruled out further bids from Kohlberg Kravis Roberts or Mr Dermot Desmond's IIU group and believe that any early recommendation by the board in favour of either the eIsland or Valentia bids will be conditional on no higher bid emerging within a specified period.
Certainly, the reaction in the market yesterday suggests that there is little prospect of Valentia's offer of #1.20 a share plus a 2.1 cent dividend getting the recommendation of the board, let alone being accepted by Eircom's small shareholders and also KPN and Telia.
It is understood that the board of Eircom has been given legal advice that it could be open to legal action if it recommended an offer below the highest on the table - the current #1.22 per share plus 2.1 cent dividend from eIsland.
The board has a fiduciary responsibility to act in the best interests of all shareholders and that means getting the highest possible price.
The #1.221 Valentia bid was agreed with the ESOT last Friday as was an agreement allowing the trust to buy another 15 per cent of Eircom. The higher the price the more that the trust will have to pay to increase its stake - and it is that issue that may give rise to a serious conflict between the company, the trust, which represents 11,000 employees, and possibly the trade unions which dominate the ESOT's board of trustees.
But analysts believe it is inconceivable that the board could put the interests of the trust's members ahead of the interests of more than 450,000 shareholders as well institutional investors and the two members of Comsource, KPN and Telia.
The current two cent gap between eIsland and Valentia is the equivalent of #44 million for Eircom shareholders and that is far too big a margin for the board to ignore in deciding what to recommend. That is why Valentia's statement that it will pay a "minimum" of #1.221 is of crucial importance as it leaves Valentia the flexibility to increase its offer if, as seems certain, the Eircom board rejects the present offer. While neither party has commented officially on the arrangement, sources close to Valentia have indicated strongly that the trust's backing is firm. But it is understood that this support is far from guaranteed and that no formal backing can be given without a ballot of the trust's members.
Sources close to the ESOT said it was not possible for the trust to have a binding written contract with Valentia. All that has happened is that the trust has said it is "of a mind" to partner Valentia. That leaves the trust free to change its position if circumstances change.
The ESOT spokesman would not comment on why the trust is apparently "of a mind" to support an offer that disadvantages the other 85 per cent of Eircom shareholders. But sources emphasised that the ESOT's position is not based purely on price but also on the ability of the new owners to run the Eircom business. It is not known what the Valentia consortium - which has no obvious telecom expertise - has told the ESOT about how it intends to manage the business if its bid is successful. But Mr Denis O'Brien's eIsland bidding vehicle, which has offered the ESOT a 24.9 per cent stake, has repeated that it is "led by the best management team in the Irish telecoms industry with a clear plan to reintroduce revenue and business growth".
