Proposal to purchase Eircom rings a familiar bell

BUSINESS OPINION:Concessions will have to be made by all involved if the former State telco is to move forward, writes JOHN COLLINS

THE EIRCOM ownership merry-go-round began spinning again last Thursday when details of a possible bid from former Babcock Brown executives was made public.

The proposal from TaemasBridge, an unlisted vehicle controlled by former Eircom board member Rob Topfer, would effectively see the Babcock Brown team that bought out Eircom in 2006 regaining control of the company, with a 57 per cent stake.

At first glance there’s a strong sense of deja vu about the proposal. This time around, Topfer and co plan to leverage the global economic downturn and Eircom’s €4 billion debt pile in an approach they bill as “use crisis to create value”.

In their view, Eircom will breach its debt covenants in 18 months and so the “looming default” should be used to wring concessions from debt holders, the Government, unions, the employee share ownership trust (Esot) and pension trustees. In its Project Liffey proposal TaemasBridge says that this is a well-proven approach that worked for Deutsche Telecom, France Telecom and Holland’s KPN when they had similar “debt crises” in 2003.

Quite correctly Eircom management, unions, politicians and the Esot issued statements rejecting the proposal.

It’s clear that the last thing Eircom needs is another private equity investor that will pick over its few remaining liquid assets and flip what’s left as soon as the capital markets recover.

Topfer and co intend to gain control of Eircom majority shareholder Babcock Brown Capital (BCM) by dispersing its $180 million cash pile to shareholders, although TaemasBridge would source a loan to carry the transaction. Is it any wonder the Sydney Morning Herald referred to Eircom as the lolly shop last week?

Without a hint of irony, the Communications Workers’ Union (CWU) led the charge of righteous indignation, saying the union and its members were appalled that once again Eircom will be “used as a financial football by private equity institutions.”

“The situation at Eircom provides more evidence of the opportunistic and short-term approach of venture capitalists and private-equity interests which threaten the company and its ability to support our national telecom infrastructure requirements,” CWU general secretary Steve Fitzpatrick said in a statement. No mention, of course, that his members have scored handsomely in this game of “financial football”. In a series of manoeuvres that would do any private-equity firm proud, the Esot, which CWU members in Eircom are members of, has increased its stake from 14.9 per cent in 1999 to its current 35 per cent level. It has also distributed €750 million to its members during that time and is believed to be holding another €180 million in cash. In a statement to members, the Esot said it “recognises that the company is facing difficult times and is supportive of the dialogue under way with staff and unions to address many challenging issues”.

Surely then it should consider investing its cash pile in the goose that laid its golden egg rather than making another tax-free disbursement to its members?

Eircom management also wants to have its cake and eat it. On the one hand, it issued a strongly-worded statement to staff last Thursday stating that “the model that Eircom has experienced since 2006 has failed the company, its employees and its investors, and has seriously damaged its credibility”. Despite that, Eircom sources claim that relations with BCM are good, largely thanks to the fund severing ties with its bankrupt parent Babcock Brown.

The bottom line is that staff and management at Eircom have benefited handsomely from the company’s repeated changes of ownership. When the country needed a stable telecoms firm that was investing to support economic growth, we got a highly leveraged vehicle that made the bare minimum investment.

TaemasBridge have got one thing right – concessions have to be made by all involved if Eircom is to move forward, attract new investment and build the next generation networks that can be integral to our economic recovery.