THE sale of the 8 per cent stake in Telecom Eireann held by Swedish telecoms group, Telia, is now expected, following the decision of its Norwegian merger partner, Telenor, to increase its stake in mobile phone operator Esat Digifone. Telenor is increasing its stake from 45 per cent to 49.5 per cent at a cost of $57 million (€51.6 million).
Esat Telecom confirmed yesterday that it had bought a similar additional 4.5 per cent stake in Digifone from Dermot Desmond's IIU investment group for $57 million. This leaves Esat and Telenor with equal 49.5 per cent stakes in Digifone with IIU retaining a 1 per cent interest in the mobile phone operator.
The sale values Digifone at over $1.25 billion (€1.13 billion or almost £900 million) and means that almost two-thirds of Esat Telecom's $910 million stock market value is accounted for by its 49.5 per cent stake in Digifone. The sale of the 9 per cent stake by IIU for £82 million leaves Mr Desmond with a huge profit on his investment in Ireland's second mobile phone operator.
Through its 8 per cent stake in Telecom Eireann, Telia is also a shareholder in Telecom's Eircell mobile phone subsidiary. Assuming the Telia/Telenor merger goes through, it would mean that the merged entity would have a stake in two competing mobile phone operators, producing a clear conflict of interest.
Telenor's decision to commit $57 million to an additional 4.5 per cent stake in Digifone is seen as reflecting the Norwegian group's long-term commitment to the mobile phone operator, indicating that if one of the conflicting assets is to be sold, it will be Telia's 8 per cent stake in Telecom.
Telecom is still on target for a June initial public offering (IPO) when the Government is expected to sell 2530 per cent of the shares in the biggest ever share offering in Ireland.
Whatever mechanism ends up being used for the disposal of the Telia stake in Telecom, the Swedish group will want to maximise its profits on the Telecom investment and this is likely to mean waiting for the IPO to be completed before selling its 8 per cent stake to institutional investors. These investors will be heavily underweight in Telecom shares and active bidders for any shares being offered after the IPO. A recent NCB report puts a £360 million value on Telia's stake in Telecom at present but this could rise sharply both ahead of the IPO and afterwards when Telecom shares begin trading.
The IPO is expected to be heavily biased towards small investors and this will leave institutional investors well short of the required weighting of Telecom shares given that Telecom's is expected to make up around 7 per cent of the ISEQ Overall Index. Even before the recent takeover bid by Olivetti for Telecom Italia which has boosted the European telecoms sector, NCB Stockbrokers valued Telecom at €5.7 billion (£4.5 billion). This would make it the fifth biggest company on the Irish market, after AIB, Bank of Ireland, Elan and CRH. NCB believes that the Eircell mobile phone subsidiary could account for half of Telecom's likely stock-market valuation.
