O'Reilly and Soros to offer €2.6 billion for Eircom

Sir Tony O'Reilly has secured the backing of international financier Mr George Soros, for a €2.6 billion - £2.05 billion - offer for Eircom. The offer is expected to be announced this week, possibly as early as today, and could spark a bidding war for the non-mobile operations of the former State-owned telecoms company.

EIsland, the consortium led by Mr Denis O'Brien, the former chairman of Esat Telecom, is also expected to unveil a bid this week. Mr O'Brien made an indicative offer of €2.2 billion last October which was rebuffed by the Eircom board. Mr O'Brien's next approach is expected to be without seeking the backing the board and will be considered "hostile".

The prominent financier Mr Dermot Desmond is also mulling a bid via his Dublin-based company International Investment and Underwriting.

Sir Tony's interest in Eircom was first reported in November, but it was thought he had lost interest. However, according to a report in today's Financial Times, he has teamed up with four financial backers, including Goldman Sachs. The consortium is led by Providence Equity Partners, Warburg Pincus, and a third private equity fund controlled by Mr Soros.

The group expects its offer will be supported by Eircom's management and is portraying it as a white knight defensive bid to Mr O'Brien's mooted hostile approach.

A formal approach to Eircom has yet to be made by the O'Reilly and Soros-backed consortium and is likely to be fiercely opposed by Mr O'Brien. It was unclear last night whether key shareholders such as Telia and KPN, the Swedish and Dutch telecoms operators, had informally agreed to back Sir Tony's consortium.

Eircom has effectively been on the market since the announcement last November that it was in talk with Vodafone, the British mobile phone giant, to sell Eircell. Final agreement on the terms of the €3.6 billion deal in recent weeks has cleared the way for bids for the remainder of Eircom. Prospective bidders for the Eircom rump - essentially the fixed-line business - now have a clear idea of what will be left in the business after the sale of Eircell.

The O'Reilly consortium bid is expected to be worth significantly more than €1 per share on offer from eIsland. It is expected to value Eircom at between €2.6 billion and €2.7 billion, including debts.

The consortium has yet to make formal approaches to Comsource, the holding company for Telia and KPN's 35 per cent stake, or the Employee Share Ownership Trust (ESOP), which controls a further 15 per cent. The support of the ESOP could be crucial as the consortium will need the backing of shareholders, representing 80 per cent of the business, if it is to succeed.

The ESOP has already told EIsland that it will only support the deal if it can increase its stake in the business. A similar line is expected to be adopted with Sir Tony and his backers.

The former rugby star and chairman of Independent News and Media is expected to play a significant role in winning over the 450,000 or so disgruntled small shareholders in Eircom who own another 15 per cent of the company.

Private backing is believed to have been sought from individuals connected with both Comsource and Eircom's management. Neither Comsource, Eircom nor ESOP was available for comment last night.