Vodafone shares in UK remain under pressure

Shares in Vodafone - which Eircell shareholders will receive if the takeover deal is approved - remained under pressure on the London market yesterday and lost another 2p to £2.33p sterling. That is almost 40p lower than Vodafone's share price when the negotiations on the purchase of Eircell first became public in October.

But yesterday's weakness was not unique to Vodafone, as telecom stocks remained under pressure across Europe. Losses in the sector were modest but the companies affected included the likes of France Telecom, KPN, Telia, British Telecom, Cable & Wireless and Colt.

Analysts still take the view that Vodafone is the blue-chip share of that sector, but that status will not prevent its stock falling in line with sectoral weakness.

That £2.33 closing price and yesterday's euro/sterling exchange rate €0.626 puts a value of €1.77 on the demerged Eircell shares based on the proposed rate of 0.9478 Vodafone shares for every two Eircell shares. The lower Vodafone shares fall, the lower will be the price put on Eircell shares.

Shareholders in the demerged Eircell will have more than the Vodafone share price to monitor over the next three months. Another key variable in assessing the worth of their Eircell shares is the value of the euro against sterling, as shareholders will be swapping euro-denominated Eircell shares for sterling denominated Vodafone shares.

At its simplest, the stronger sterling is against the euro the better it will be for Eircell shares. For example, yesterday's euro/sterling exchange rate of €0.626 puts value of €1.77 on Eircell shares at Vodafone's closing price. If the exchange rate had been €0.60 - the rate when the takeover negotiations first became public two and a half months ago - Eircell shares would be valued at €1.84 at the same Vodafone price of £2.33p sterling.

And at the same Vodafone share price, a euro/sterling of €0.65 puts a value of €1.70 on Eircell shares, a rate of €0.70, a value of €1.58 and an exchange rate of €0.75 a value of €1.48 per Eircell share. Economists believe the euro is unlikely to strengthen to anything like that degree against sterling and cited the modest recent gains against sterling compared to the sharp recovery against the dollar. But even modest weakness by sterling against the euro could have a significant impact on the valuation of Eircell shares.

Vodafone looked set to extend its shopping spree into Australia yesterday with a report that it was bidding about 18 billion Australian dollars for Cable & Wireless Optus Ltd.

C&W Optus said several parties had offered to buy it or some of its assets, marking the start of a potential bidding war for Australia's second-ranked telecoms carrier.

Its shares rose as much as 11 per cent after the Australian newspaper reported Vodafone was bidding at least Aus$18 billion as it aimed to add Australia to the Irish and Japanese deals it did this week.