The board of Eircom meets tomorrow with some tough decisions to make. The race to buy the company hotted up considerably over the weekend. First, the Denis O'Brien led eIsland consortium announced that it was bidding #1.24 per share for the company. It now appears that Mr O'Brien's move was designed to get in ahead of an announcement by the Valentia consortium, led by Sir Anthony O'Reilly, that it had concluded an agreement with the group representing the employees' 14.9 per cent shareholding. Valentia now has a deal with the Employee Share Ownership Trust which will - subject to a ballot of its members - sell its share to the O'Reilly consortium as part of an agreement under which it would be allowed to increase its stake to 29.9 per cent. At the moment the Valentia consortium is believed to be offering around #1.19 to #1.20 per share.
There may be a few twists left yet in the bidding battle. After all, Mr Dermot Desmond's International Investments and Underwriting group has still to show its hand. Some US investment banks are also examining their options. However some of the key issues facing the board are now becoming clear. The board must try to secure the best deal for its shareholders. It is important to remember, first of all, that it could decide not to sell to any of the bidders, believing that none of the bids fairly value the company. This would be a brave decision, but to be credible would require the board to bring forward a strategy of its own.
There is no sign at the moment of such a "go it alone" strategy being formulated. On the contrary, the Eircom board and management seem resigned to selling off the company. From the point of view of shareholders, this may mean an immediate cash pay-out. But the question is how will the decision to sell look in a couple of year's time? The board must recognise the serious risk of selling Eircom "on the cheap". If they do decide to sell, the board must of course seek the highest price. One difficulty here is that a key group of shareholders - the ESOT - may prefer not to sell to the highest bidder. The ESOT will want the highest possible stake for employees - currently offered by Valentia. But the ESOT will have to pay for the extra shares it will buy as part of any deal and the price it will pay will probably be the offer price. So the lower the offer price, the cheaper it will be for the employees to build up their stake. It is the job of the ESOT, of course, to seek the best possible deal for Eircom employees. And it will also, no doubt, have carefully assessed the plans of the Valentia consortium for employment levels, before striking the deal. But the interests of the Eircom board must be wider. They are charged with seeking the best possible deal for all shareolders. If the Valentia offer is not increased, the offer from eIsland is higher in cash terms, posing a dilemma for the board. Its first response is likely to be to ask whether Valentia will pay more. There is, in all likelihood, some way to go yet. But the board of Eircom, which has not distinguished itself in its guidance of the company after its stockmarket float, now carries a heavy responsibility on behalf of the hundreds of thousands of small Eircom shareholders who have lost significantly on their investment.