Eircom shareholders will not receive the protection provided by either Irish or UK takeover rules if Swisscom proceeds with a takeover bid.

Any bid for the company will not be subject to scrutiny by the Irish Takeover Panel or its British counterpart because of Eircom's unusual status as a UK-registered but Irish-based company.

A spokesman for the Irish Takeover Panel said yesterday it had no control over any bid because Eircom was incorporated in Britain. Eircom transferred its residency out of the State in 2003 to facilitate a multi-million euro dividend payment to its British, Irish and US shareholders.

It is owned by a UK-based shelf firm, Valentia Holdings Ltd, which it acquired for €2.

Despite being British-owned, the UK city code on takeovers and mergers does not apply to Eircom.

A spokesman for the British Takeover Panel said it only had jurisdiction over companies incorporated and centrally managed in the UK. "Eircom doesn't pass that test. It falls between two stools," the spokesman said.

Eircom outlined that shareholders, especially small shareholders, would not be protected in the event of a bid in the risk factors in its prospectus when it returned to the stock market in March 2004. However, the company included limited takeover protection in the rules setting it up.

This includes a commitment by the board to obtain an undertaking from any bidder to comply with Irish takeover rules before recommending an offer. A spokesman for Eircom said last night that it had no intention of exploiting the lack of takeover scrutiny. "It will be fully compliant in all respects," he said.

But shareholders, including retail investors, could be dependent on the goodwill and judgment of Eircom and others, in the event that complications arise in the takeover process, such as a rival bid or controversial stake-building.

The adoption of an EU-wide directive on takeovers next year will, however, plug the gap that has allowed the Eircom situation to develop.

(Additional reporting by Reuters)