The biggest offering of shares to date to the Irish public is about to get underway, with Telecom Eireann to announce tomorrow the terms on which the public will be invited to apply to take a stake in the group. More than 1.2 million people have already registered their interest in buying shares and many of them are now likely to follow this up with share purchases. Never before will so many people have had a stake in an Irish company floating on the market as will be the case when the Telecom shares launch in Dublin, London and New York in early July.
In response to the strong demand for shares from the public, the Government has decided to dispose of its entire 50.1 per cent shareholding in Telecom. Provided the markets remain strong over the coming weeks, the Government will sell almost its entire holding when the company floats, only holding on to a couple of percent so that it can give loyalty shares to members of the public who hold on to their shares for one year or more. Effectively, Telecom will be a completely privately owned company, fighting it out in the marketplace.
The decision to dispose of the entire state shareholding will have been long debated by the Government, the company and its advisers. On balance, it appears the right course of action. The Minister for Public Enterprise, Mrs O'Rourke, has said on a number of occasions that her priority is to see as many shares as possible in the hands of the public and it is this argument which persuaded the Government to sell off all the shares. The Government could have chosen to retain a stake of around 10 per cent, but a shareholding of this size would have given it relatively little influence in the running of the group and would have resulted in only a limited gain from any further price rise. Extra expense would also have been occurred in the subsequent sale of any remaining stake.
The final - and tricky - decision left for the Government is the precise price at which the shares will float. The aim will be to set a price which will allow a modest rise in the price in the early days of trading, but not an increase of a scale which suggests that the shares were sold off too cheaply. Stock market conditions in the run up to the sale and the level of final demand for the shares will be the determining factors. The shares should thus reward those who invest with an initial rise in the value of their holding, although this can not, of course, be taken for granted. Nor should investors expect Telecoms shares to rise as sharply over the longer term as those of previous flotations such as Irish Permanent. They may do, but equally some analysts see a risk of a fall in highly valued stock markets in the months ahead, which would be bound to affect the Irish market.
Telecom also faces increasing competition in the domestic marketplace and the value of its share in the long-term will be influenced by how successfully it responds to this. The group's management knows that it faces a fight to hold on to its Irish customers and must diversify both at home and abroad to continue strong profit growth in the years ahead. Investors should thus hope that the group can provide a good solid return both in terms of share price growth and dividend yield, but understand that all stock-market investments involve risk. They should also be prepared for the value of the shares to rise and fall in tandem with the inevitable swings in the market.