Value of telecoms stock swap not clear


Eircom shareholders will receive stock in the world's largest mobile operator when Vodafone acquires Eircell. But they will have to wait until March before the value of their Vodafone stake is determined.

Investors will be asked at an extraordinary general meeting that month to demerge Eircell from Eircom before the formal sale of Eircell to Vodafone. They will receive one Eircell share for every Eircom share they hold and they will continue to hold separate shares in Eircom's remaining business.

Under the terms of yesterday's €4.5 billion (£3.5 billion) deal, they will then receive 0.9478 of a Vodafone share for every two Eircell shares they hold.

The value of those Vodafone shares will fluctuate between now and March. In London yesterday, for example, the share closed 11 pence sterling (18 cents) weaker at £2.34.

Stockbrokers were coy about the prospects for the stock in the intervening period. But according to Mr Simon Weeden, a telecoms analyst at London firm Goldman Sachs, Vodafone was a "safe haven" for investors. Mr Weeden said the company had outperformed the sector - both when prices fell and rose.

"We don't see any immediate prospects for a resurrection of the telecoms sector," he said.

He added, however, that Goldman Sachs rerated the sector this week, advising clients to take a neutral "hold" stance on telecoms stocks. Before that, it advised underweighting in the sector.

An analyst at NCB Stockbrokers, Mr Robert Hussey, said: "If you want to play mobile stocks, one of the key determinants is economies of scale. The future is more secure under Vodafone."

Vodafone has more than 65 million customers and has stakes in 25 mobile operations in five continents - only in Latin America has it no presence.

Mr Weeden said this meant it could secure a return on the large-scale investments required to acquire more advanced 3G mobile phone licences. Some companies that secured such licences had no client base to sell services to, he added.

The gain for Vodafone from the Eircell deal would be derived from synergies it developed with the Irish business. "It looks like a pretty fair price," Mr Weeden said.

Vodafone also has stakes in 14 European mobile operators.