Eircom's board has rejected an increased offer from Mr Denis O'Brien's eIsland consortium and recommended the lower offer from Sir Anthony O'Reilly's Valentia consortium. The decision may be challenged in the courts, sources close to the O'Brien group have stated.
The renewed bidding activity led to huge trading in Eircom shares on the Dublin and London markets yesterday. More than 22 million shares traded as the price rose four cents to €1.30 - midway between the cash offers from Valentia and eIsland. Market sources said this reflected the market's uncertainty over the outcome of the takeover battle.
As was reported exclusively in The Irish Times yesterday, the revised bid from eIsland offers Eircom shareholders €1.32 a share in cash against €1.27 from Valentia. EIsland also provided an alternative of €1.255 a share in cash with a guaranteed €0.12 in warrants that can be cashed in after three years.
The Valentia alternative is an immediate €1.25 plus a maximum of €0.07 in warrants after three years.
Last night, the Eircom board decided the acceptances given to the Valentia consortium by KPN and Telia in respect of their 35 per cent stake in Eir com shares two weeks ago were legally binding. On that basis, it decided there was no prospect of eIsland's bid being successful.
"The board can only recommend a bid it believes is capable of being executed," said one informed source.
It is understood that, ahead of the board meeting, the Employee Share Option Trust informed the board it was staying with the Valentia offer which gives it the option to increase its stake in Eircom to 29.9 per cent.
Before last night's board meeting, Mr O'Brien called on the Eircom board to switch its recommendation from Valentia.
"We challenge the board of Eircom to do the right thing and recommend the best offer," he said. "Our offer the last time was the highest offer. Now we're a huge quantum higher than Valentia's offer, a full five cents on a cash basis.
"An extra €110 million is an extraordinary increase and they have to go and recommend it."
The Valentia offer is €110 million less than that from eIsland. This means the 450,000 small shareholders, who own 22 per cent of Eircom shares, will lose out on the additional €24 million that the eIsland bid would provide them.
The abridged offer document from Valentia was sent out to Eircom shareholders last night, and the consortium's period of exclusive negotiations with Valentia has now expired. The formal offer document must now be published within 28 days.
Sources close to Eircom said that now that the Valentia offer had been formally launched, eIsland had the option of going directly to Eircom shareholders, including KPN and Telia.
However, it seems that unless eIsland comes up with more than the €1.355 in immediate cash to release KPN and Telia from their obligations, its only option is to challenge the legality of the commitments that KPN and Telia gave Valentia.
It is understood that eIsland has asked for a copy of the agreement between KPN/Telia and Valentia.
The eIsland immediate cash offer is €1.32 a share, although the O'Brien grouping maintains that its guaranteed warrants of €0.12 are the equivalent of cash and thus its offer is ahead of the €1.355 threshold.
It is understood that KPN and Telia's advice is to the contrary and that unless up-front cash of more than €1.355 is on offer, their commitment to accept the Valentia offer cannot be broken.
