O'Brien in talks with Esot on Eircom deal

DENIS O’BRIEN is believed to have established contact with the employee share ownership trust (Esot) at Eircom, opening up the possibility the two might collaborate on a proposal to restructure the telco and its €3.8 billion debts.

It is understood Digicel made contact last Thursday with Jerome Barrett, Esot chairman.

This is believed to have been a preliminary approach to the trust as the clock ticks down to Friday’s deadline for interested parties to submit bids on proposals to take control of Eircom.

Digicel declined to comment yesterday when contacted by The Irish Times.

Mr O’Brien’s Caribbean-based Digicel mobile phone company has expressed interest in Eircom in recent weeks as the company seeks to conclude a restructuring of borrowings with a committee representing first lien lenders.

One source said the approach did not necessarily indicate that Digicel and the Esot would come together on a proposal. It is possible Digicel might pursue its own proposal for now and possibly later seek Esot’s participatio.

To date the Esot, which owns 35 per cent of Eircom, has collaborated with its fellow shareholder, Singapore-based STT, on a proposal to put about €300 million in new equity into the company.

This would involve the Esot providing €45 million to €50 million in equity and would result in the employee group’s stake in the business being cut to about 12 per cent.

The Esot, however, is believed to be pushing for a holding of closer to 18 per cent to reflect the support provided by workers at the company to cost-cutting programmes in the past few years.

It is understood the equity provided under this joint proposal would be made available to the cash-starved business for capital investment in a fibre network.

It emerged yesterday that STT has held discussions with London-based Communications Ventures Partners about joining this proposal, which would involve lenders writing off some debt in return for a 20 per cent stake in the business.

Eircom’s independent directors have set Friday as the deadline for interested parties to submit their offers. It is understood that the directors have requested sealed bids from the various parties.

Mr O’Brien has twice before sought to gain control of Eircom. He previously lost out to the Valentia consortium led by Sir Anthony O’Reilly and to Australian group Babcock Brown, which owned the business before STT took control early last year.

Mr O’Brien previously sought the support of the Esot when in opposition to the Valentia consortium. But the employee share trust chose to back the proposal led by Mr O’Reilly. It is still not clear why Mr O’Brien and Digicel would want to buy Eircom or how its takeover might be funded.

Digicel and Eircom are geographically dislocated and there are no obvious synergies from their combination. In addition, Digicel is heavily indebted – it owes $4.6 billion (€3.3 billion) – and is committed to significant investment in its pan-Caribbean network.

No deadline has been set for a conclusion to this process but the waiver on the breach of its banking covenants expires in mid-December and so a decision could be taken within weeks. The board of Eircom will make a recommendation to the co-ordinating committee of the senior lenders, who will have the final say.