After a year working on the project to sell Telecom Eireann, the final meeting was tense. At what price would the Telecom shares be floated?
Gathered in Government Buildings Tuesday of last week were the Cabinet members charged with making the decision and their civil servants.
The Minister for Public Enterprise, Ms O'Rourke, was arguing for a price of under £3 (€3.81) to allow a significant gain for the public who had invested. On the other side, the Minister for Finance, Mr McCreevy, countered that the strong demand for the shares justified a high price.
The ministers had heard different recommendations from the two corporate finance advisers to the Government at the beginning of the meeting. Mr Colm Doherty of AIB Corporate Finance had pushed for a price of £2.95, while Mr Russell Chambers of Merrill Lynch had said that, such was the demand, the shares should be priced as high as £3.37. Now the ministers had to decide.
In the end, it was up to the Taoiseach, Mr Ahern, to broker a compromise. Nobody could agree on a round number as the debate went back and forward between £3 and £3.10. So a price of £3.07 was struck, closer to the position advocated by AIB than by Merrill Lynch. At least it was a round number in euros - €3.90.
The deal was done and it was decided the shares would be floated at a price which valued Telecom above most other European telecommunications firms and more highly that the company's management had itself wanted.
After an anxious 24 hours, the shares floated at a hefty premium and have held most of the gains since then.
While the decision to go for a stock market offering was taken in March 1998, the real work started almost exactly a year ago, with the appointment of AIB Corporate Finance and Merrill Lynch as joint Government advisers. AIB played the lead role in the hugely successful Irish side of the campaign and was seen as more than holding its own against the international heavyweights from Merrill Lynch.
One steering group - including the key players from the Government, the company and the advisers - was established to oversee the whole process and four working groups looked after the various elements of the flotation.
Much of the initial work was done quietly. The company and its advisers worked on a detailed review of its operations. Every aspect of the company's business was mapped out and a painfully slow process of drawing up the prospectus and confirming and reconfirming every figure was gone through.
Telecom's chief executive, Mr Alfie Kane, the company's project co-ordinator, Mr Donagh McGovern, Mr John O'Donnell of AIB Corporate Finance, Mr Sean Carney of Merrill Lynch and Mr Nigel Higgins of ABN-Amro Corporate Finance, which was advising the company, were all centrally involved in the complex financial work which went into the prospectus.
In tandem with this, the group working on the politically sensitive aspect of the flotation - the offer to the public - got to work. It had been given a clear mandate from the Government to maximise public involvement. Work on how to do this began in earnest towards the end of last year.
This group included Mr Roy Barrett head of AIB's stockbroker, Goodbodys - subsequently appointed as Telecom's own brokers - and Mr Gerry O'Sullivan, head of corporate affairs at Telecom, along with representatives of the PR and advertising advisers and the Department of Public Enterprise.
Extensive research was commissioned, including both quantitative surveys and focus groups around the State. The results indicated that people were very interested in buying the shares, but, equally, they knew little or nothing about investing in the market. The trick was to devise a campaign which got the basic information across, without patronising people.
Companies from Dublin and London - Drury Communications and Dewe Rogersen - got the £1 million (€1.27 million) PR contract, while Ian Young's Irish International advertising agency was put in charge of managing the advertising campaign, which was to cost some £2 million. It was they who suggested the re-mix - by Donal Lunny - of the catchy Dulam an tune, which was central to the TV campaign.
Meanwhile, at Minister O'Rourke's suggestion, every household in the State was sent details of the flotation - with this approach chosen in favour of using Telecom's own customer register.
To deal with the public interest, a share office was established, staffed by 200 people, to deal with queries and help the public at every stage of the process. Alongside this central office, a "local face" was put on the campaign through the branches of AIB - Goodbodys parent - where the huge task was undertaken to train 3,000 staff on the registration and application process.
The other key decision on the retail offer was what incentive to offer the public to invest. Again the research findings were called into play. They showed that many people saw themselves as holding the share in the long term. For this reason it was decided to opt to give a bonus share at the end of first year - one free share for every 25 held - rather than give a discount on the issue price.
In the course of the negotiations, a number of crunch issues emerged before the final debate on the price.
One was the lengthy negotiations with Telecom's strategic alliance partners, KPN of the Netherlands and Telia of Sweden. The first problem here emerged when a merger was announced between Telia and the Norwegian state company, Telenor.
As Telenor was a shareholder in Esat Digifone - the competitor of Telecom's Eircell - it was immediately clear that either it or Telia would have to sell its Irish holdings.
If the merger goes ahead, Telia will be the seller. There were lengthy discussions on the formula by which its shares would be sold, which would not allow KPN to take a stake of more than 29.9 per cent for 18 months at least.
There were also heated discussions - with KPN in particular - at the time the price range for the share sale was announced. KPN, it has emerged, feared the range was on the high side and indicated clearly that this was an issue for it. After lengthy toing and froing, a clause was written in to the prospectus which tied the price which KPN must pay the Government to increase its stake to the float price, or an average of the trading price on the market, whichever turned out to be the lower, protecting the Dutch company if the share price did fall.
And then, of course, came the shenanigans in the Telecom boardroom. Acting on the advice of AIB and Merrill Lynch, Ms O'Rourke had restructured the board, persuading most of the existing members to leave and appointing new members with either telecoms or public company experience. Among the new appointees was Mr Pat Molloy, former chief executive of Bank of Ireland and Mr Jim Flavin of DCC. Another was incoming chairman and US telecoms heavyweight, Mr Brian Thompson, who was touted as the key man who would sell the flotation in the US.
But just two months later, Mr Thompson rang the Government to inform it he had been offered a new position as chairman and chief executive of international telecoms group, Global TeleSystems (GTS). He did not indicate that he saw a problem with this and may not have even realised that GTS had a small operation in Ireland.
Telecom's advisers, however, discovered this and, after a series of transatlantic telephone calls, Mr Thompson issued a statement that "regretfully but appropriately" he was resigning his position.
The PR message was sent out that the float was not affected and Ms O'Rourke, forced to move quickly, decided to appoint Mr Ray MacSharry as chairman.
Accountant Mr Ron Bolger, who had stepped aside as chairman for Mr Thompson to be appointed but had remained on the board, resigned the day after, angry that he had been passed over a second time. He had been heavily involved in the company business for a number of years and Mr MacSharry had quickly to take up the baton with the flotation fast approaching.
But such was the momentum behind the flotation that - barring a market collapse - there was never any prospect of it not going ahead.
It was becoming increasingly clear that the retail marketing campaign was working well, assisted by the advertising campaign and the link through the AIB network. All kinds of records were set. Almost 1.2 million people registering for shares and just under half of these, 574,000, went ahead to purchase, a much higher conversion from registration to application than seen in any other comparable major flotation. Some 20 per cent of the adult population will own shares. The next highest in major telecom flotations was Telstra in Australia, where 14 per cent of the population bought shares, while the typical figure for European telecom initial public offerings is 3 to 5 per cent of the public. The Government aim of encouraging private share ownership was clearly met, with at least 60 per cent of Telecom's shareholders believed to be first-time purchasers of stock.
With retail interest so strong, the Telecom sector in favour and "Ireland" a good story to sell, the institutional investment interest was always going to be strong. Around 112 meetings were held with major institutions in the runup to the float and 107 of these institutions applied for shares, along with many more who were not met individually.
In total, more than 600 institutions received an allocation. Broken down, 33 per cent of the institutional shares went to Ireland; 24 per cent to Britain; 21 per cent to Europe; 20 per cent to the US; and the remainder to the rest of the world.
It is this strong interest from major institutions, most of whom got fewer shares than they wanted, which has supported the shares in early trading, a trend private investors hope will continue in the weeks ahead.
