Valentia must bid again or withdraw by Monday

Valentia Telecommunications has been given until next Monday by the Irish Takeover Panel to make a formal bid for Eircom or else withdraw from the process.

The consortium, a group of US venture capital funds chaired by Sir Anthony O'Reilly, failed to meet a deadline of last Sunday to post offer documents to shareholders, and instead asked for and obtained a one-week extension.

A further postponement of the deadline is unlikely to be granted. "If we are going to do something, we will do it this week," a source close to the consortium said.

Valentia had 28 days from the announcement of its firm intention to bid for Eircom on June 1st to post details of its #1.27 per share offer to shareholders. It has been forced to reassess its position following a rival #1.36 per share bid from eIsland on July 12th.

Eircom's board withdrew its support for Valentia, and switched to eIsland. Its largest shareholder, Comsource, is expected to follow suit if Valentia does not match eIsland's offer.

Intensive negotiations are ongoing between Valentia and Comsource, the Dutch-Swedish consortium which owns 35 per cent of Eircom. Valentia is only prepared to increase its bid if Comsource gives a binding agreement to accept the new offer.

Under its existing agreement with Valentia, Comsource can accept a higher rival offer if Valentia does not match it within 14 days. The deadline for Valentia to match the current eIsland offer under the terms of the agreement expires on Monday also.

Valentia is reluctant to match eIsland and has argued that Comsource should continue to support a lower offer from it because it has a greater chance of succeeding. Valentia has tied up the support of the Employee Share Ownership Trust (ESOT) which controls 14.9 per cent of the company.

If it can also nail down the backing of Comsource it is almost certain to succeed. Comsource may yet be persuaded by Valentia. KPN, the Dutch phone company which owns 21 per cent of Eircom via Comsource, urgently needs to raise cash in order to pay down borrowings.

It may be prepared to accept a lower price in exchange for certainty and a quick pay-out. Telia of Sweden, which owns the remaining 14 per cent of the Comsource stake, is not under the same pressure and may be prepared to wait in order to extract the highest price.

If they cannot agree, KPN and Telia can end their joint venture and back different bidders.

Sources close to Valentia said yesterday that even if it misses next Monday's deadline it is not out of the race. It can come back with a completely new offer, but only with the approval of the takeover panel and the support of the board.

The ESOT support for Valentia was boosted yesterday when a petition expressing dissatisfaction with the eIsland offer was presented to the chief executive Mr Alfie Kane. The petition collected 4,258 signatures from Eircom's 11,000 employees.

EIsland said it was surprised by the petition which referred to it as anti-union.

Mr Eddie Murphy, the chairman of the Communications Workers Union Number 1 Branch and one of the petition organisers, said Mr Denis O'Brien was anti-union and had "slagged off" Eircom for years.