Share price uncertainty as buyer is sought

Why is KPN selling when it was expected to increase its shareholding when Swedish company Telia sold its shares?

KPN says it has been reviewing its international strategy over the past six months and one of its key objectives is to have management control, which it does not have in Eircom. However, it was just eight months ago that KPN said it would use its Eircom (then Telecom Eireann) shareholding to introduce services in Britain.

Is it not a bit soon for KPN to be selling out?

Under the shareholders agreement, outlined in the prospectus given to those buying shares, KPN can sell its shares after six months, if it so wishes. It obviously wishes to do so - having announced its intention to sell just four and a half months after the shares were floated.

How did the markets take it?

Not badly. Following the Initial Public Offering in July Eircom shares soared, reaching €5.30 (£4.17) at one stage during its first day's trading. It has suffered mixed fortunes since, dipping as low as €3.65. It closed at €4.13 ( £3.25) yesterday, or 18p above its float price. Analysts say that on a price/earnings ratio it has been trading below its European peers and represents good value to a potential buyer.

What's in it for the ordinary shareholder?

The next few weeks will see a flurry of speculation about possible buyers for the 35 per cent stake. Market reaction, if favourable, will push up the value of the shares. However if the management runs into difficulties finding a buyer, then the price could fall sharply.

Will selling the shares in one tranche trigger a takeover bid?

Under normal rules a company which takes a stake in excess of 29.9 per cent must bid for the whole company. Exemptions to this can be sought from the Takeover Panel, but such exemptions are rare.

Does Eircom need a strong strategic partner?

The perceived wisdom is that it does - the telecoms industry is rapidly consolidating and merging. Being part of a group which has global reach and financial muscle is crucial.

Will the 35 per cent stake be easy to sell?

Again, perceived wisdom is that it will. The Republic is Europe's fastest growing economy. Eircom is a company in good financial health - its latest results show pre-tax profits of £113 million (€160 million) in the six months to end September. As a former monopoly it still has a majority share of the telecoms market.

What are the downsides?

As its chief executive Mr Alfie Kane conceded yesterday, the company is still in transformation and has a long way to go to best industry practice productivity levels.

How much have the exiting shareholders made out of their Eircom involvement?

On their own figures, Telia's total investment in Eircom is around £600 million. The market value of its stake is £990 million. For KPN its total investment is around £900 million. Its stake is now valued at £1.5 billion. Both have made a handsome return on their investments.