AN ISLE of Man company has made a preliminary approach to buy out the Australian fund that controls Eircom, raising prospects that ownership of the Republic's fixed-line telephone system will soon change hands for the fifth time in less than a decade.
LIT plc, a listed firm which makes investments in other companies, told the Alternative Investment Market (Aim) in London that it has made a non-binding indicative proposal to buy out Babcock Brown Capital (BCM), the fund that took control of Eircom in 2006.
There was no comment last night from BCM or Eircom, whose board is set to discuss the appointment of a new chairman at its regular monthly meeting today. The incoming chairman will succeed Pierre Danon, who signalled his departure as executive chairman last June.
LIT's approach comes amid the global credit crunch, which has made raising funds to bid for takeover targets difficult for all companies. When listing on the Aim earlier this month, its directors said the recent weakness in stock markets meant there were opportunities to invest in companies "at substantially less than the intrinsic value of the business".
Any sale of BCM, whose shares have lost more than 67 per cent of their value in the past 12 months, would mean another transfer of control over the State's phone network.
Eircom was privatised by the government in 1999. It left the market in 2001 when it was sold to a US-backed consortium led by Sir Anthony O'Reilly, but was floated again in 2004. It was acquired in 2006 by Australian investment bank Babcock Brown, BCM's ultimate parent.
BCM has a majority interest in the company alongside the worker-controlled Eircom employee share ownership trust (Esot), which owns 35 per cent of the business. The fund is in talks with Babcock Brown about the termination of an agreement under which the bank manages Eircom. BCM acquired Eircom at a cost of €2.36 billion and the firm has debts of some €4.26 billion.
In the view of some sources, it is unclear if LIT plans to proceed with a formal bid or is using its preliminary approach to prompt action from BCM. The fund has promised to return money to its investors with a special dividend or a return of capital, but it has delayed a decision on that in light of its negotiation with Babcock. Even if LIT does not make a bid, the same sources believe its approach will hasten an eventual change of ownership at BCM or at Eircom, its prime asset.
LIT, in which activist investment company Laxey Partners has a controlling interest, has a market capitalisation of £99.48 million (€125.43 million). This compares with BCM's capitalisation of 270.47 million Australian dollars (€139.62 million).
LIT looks to replicate the investment strategy of private-equity funds, which typically aim to maximise profit over a three- to five-year period before selling on assets. LIT said its proposal was subject to "certain assumptions, terms and conditions precedent" and may or may not lead to an offer being made for BCM.
LIT and Laxey already own 6.7 per cent of BCM. They are considering whether to call an extraordinary general meeting (egm) of BCM's shareholders, citing a "lack of responsiveness" to their approach from its independent directors and their advisers.
"The purpose of the egm will be to ask shareholders to approve the appointment of three independent shareholder representatives to the board of BCM representing the interests of all shareholders," it said.
"These . . . representatives will ensure that the agreement that may or may not be reached with Babcock Brown Management Pty Ltd [a unit of Babcock Brown] regarding a potential internalisation of the existing management contract reflects the best interest of shareholders."
LIT said it would make a further announcement in due course.