The deal hammered out between Telenor and British Telecom (BT) was described by one adviser yesterday as "an elegant solution". Put baldly Telenor has two choices: stay or go. If it stays, it turns its 49.5 per cent stake in the lucrative Digifone mobile business into a 33 per cent stake in the Esat group. It will more than likely then pay an additional $624 million (€615 million) to increase this to 49.99 per cent, still leaving BT with overall control.
If it does not take the 33 per cent holding - at least - it must sell its stake to BT. The smart money says Telenor will now stay in for the short term to medium term at least.
"In the long term, who knows what will happen, but the company likes Ireland and is comfortable with the Irish telecoms story," said one source.
Both parties were keen to put the best gloss on the deal, stressing that everyone benefited. Telenor said it meant the company could extend its presence in Ireland.
Mr Terry Thon, senior vice-president in Telenor, said the new structure would give the potential "for even further development" of Esat (than if it had done so on its own). But Telenor also stressed that the two telecoms companies would have to draw up a plan for Esat's future and, on this basis, it would decide whether to stay or exit.
Telenor's $85 per share offer for Esat Telecom was trumped by BT's $100 per share. Ironically Telenor will have to pay $100 per share, if it wants increase its shareholding from 33 per cent to 49.99 per cent.
Even if it sells, Telenor now knows that for an investment of $150 million, it can realise $1.24 billion, quite a return for an investment made just four years ago. "It's a good deal for both sides," said a BT source. "They get choice and we get clarity."
It is understood that Telenor was taken completely by surprise when BT made the offer to buy Esat for $2.5 billion. BT was also able to acquire the crucial 1 per cent stake in mobile subsidiary Digifone, from Mr Dermot Desmond's IIU investment vehicle, giving it majority control.
This had been central to the discussions this week as Telenor contended it had options to buy the IIU stake. It is understood that this stake is being acquired for $25 million, based on the $100 per share valuation.
The question is: why has Telenor left its options open? "They haven't decided exactly what to do," suggested one source. Another asked why it would go to such lengths to put a structure in place, if it did want "out". Telenor has an initial public offering (IPO) coming up later this year. For now, it will suit the company to remain involved in Esat, say analysts, as it can point to this as an asset. It will also be able to realise its asset if it wants to pursue other opportunities.
"I think they will have to decide what to do, prior to their IPO," said a source. "The fact that they didn't do so now shows they are uncertain."
In the meantime, there is the ESB legal action hurdle to cross. The companies are negotiating for an exit package from Ocean for the ESB, and its partner AIG, the giant US insurance group. AIG owns 40 per cent of the company which the ESB set up to take the Ocean stake.
ESB/AIG believe they have a watertight agreement which prevents BT from operating in the Republic, except through Ocean. They also want compensation from BT for future loss of earnings. Although figures of £500-£600 million have been suggested for the total future value of Ocean, it is thought unlikely that ESB/AIG could receive £300 million for their 50 per cent stake. Most sources believe their likely take is considerably lower.
The matter will occupy the ESB's adviser Dresdner Kleinwort Benson over the weekend.
As BT would say - it's good to talk.
