Eircom floatation details- [article]

Originally posted by SkepticOne
This is why I think the only real solution is to promote last mile competition. There are some efforts in this direction already but they fall far short of what is needed.

Eircom to refloat in March
19/01/2004 - 8:17:13 am

Eircom shareholders have decided to refloat the company on the Dublin and London stock exchanges in early March, according to weekend reports.

International banks have told a sub-committee of the eircom board that given current market conditions, a floatation would value the firm at between €3.5bn and €3.9bn.

Merchant bank Goldman Sachs, which owns 1% of the company, is the lead advisor for the flotation, though other advisers may also be appointed.

The Valentia consortium, which owns 70.1% of Eircom, is reported to be planning to sell off its entire holding. The Valentia group includes businessman Tony O'Reilly and the private fund company Providence Equity.

The employee share ownership trust (ESOP), which owns the rest of the company, has not yet decided how much, if any, of its holding to sell.

Valentia bought eircom less than two years ago for €3bn, including €900m of the consortium's own money.

Focus: Bloat before float (18/01/04)
Eircom is accused of fattening itself up for market, but memories of the last disaster remain fresh in the minds of small investors, writes Ciaran Hancock

Working for a company that provided currency and share price information to customers around the globe, Anthony Brown felt he knew a thing or two about stock markets. So when Eircom floated its shares in July 1999, the Dublin-born executive had no hesitation in borrowing the equivalent of €36,000 from his local branch of AIB to buy a stake in the country’s biggest privatisation.
Even though Brown had never bought shares before, this investment looked like a sure thing. Eircom enjoyed a mono-poly position in Ireland’s fixed telephone line market, giving it a presence in every town and village in the country.

The company controlled 64% of the booming mobile market through its Eircell subsidiary and was looking to the future with a string of investments in the burgeoning internet sector. It was also in a healthy financial position, having recently disposed of its cable television division, Cablelink, to NTL for €679m.

In the immediate aftermath of the flotation, Brown was feeling pleased with himself. Like the other 575,000 investors in the company he was sitting on an easy profit. The 9,210 shares he owned had appreciated by 20%. If he’d picked up the phone to his broker, Brown would have cleared a profit of over €7,000.

But Brown didn’t sell his shares. He held on to them on the way up and clung to them grimly on the way down. And then the bottom fishers turned up. Valentia, a consortium led by Tony O’Reilly, acquired Eircom in a €3 billion deal in late 2001.

By then, Eircom’s share price had collapsed, the mobile business had been flogged to Vodafone and Brown received just €1.365 for each Eircom share. He had lost just over €23,000 in two years, not to mention the thousands racked up in interest payments.

Nearly five years on from flotation, Brown is still trying to clear off his debt. “I genuinely wasn’t trying to be a carpetbagger,” he says. “The way I saw it, Eircom was a solid company and I thought it was a good bottom-drawer investment for my sons, one that might provide a deposit for a house or buy them a car.

“Given the way that the company has performed since then I think I would have doubled my money by now if the original management team hadn’t been so pathetic. Instead, small shareholders were forced to sell and Tony O’Reilly and his friends got the business on the cheap.”

EIRCOM, which has kept close company with controversy for as long as most people can remember, was back in the news last week for all the wrong reasons.

For the third time in 12 months the company announced it was seeking a price increase for its monthly fixed line rental, bumping up the cost by €1.68 to €24.18. It is the last area of the telecoms business where Eircom has a complete monopoly. From February 4, householders will be paying 24% more than they were a year ago for line rental.

Rival firms and consumer interest groups railed against Eircom, accusing it of ripping off customers. Irish phone users pay the highest fixed line rental charge in the European Union. Comreg, the regulator, was slated for not flexing its muscle by blocking the price rises.

“The price increase was outrageous,” according to Esat BT, which has a 4% share of the residential market. “At present we don’t have the ability to own the customer end-to-end and Eircom has done everything to block the opening up of fixed line rental to other firms.”

Esat BT’s loss-making residential business has just 60,000 customers and Bill Murphy, its chief executive, warned recently that it might pull out of the market if it cannot offer fixed line rental to customers by the close of its financial year at the end of March. “We’ve fought bloody hard to make a go of this but in the end we might have to walk away from it,” the company said.

Eircom denies these charges and questions Esat BT’s commitment to this end of the market. The company points out that when price reductions for local and international calls are factored in, the overall increase in residential phone bills will be just 3%, which is in line with average inflation. Eircom is obliged to keep its price increases below this rate. It also argues that telephone bills have fallen by 40% in real terms since 1999, a point corroborated by Comreg.

David McRedmond, Eircom’s commercial director, says the increases were necessary to offset the cost of maintaining the national phone network. “We lose money on line rental,” he says. “The network is expensive to maintain because we don’t have the same population densities of other European countries and the one-off housing and ribbon-type developments here are costly to service.”

McRedmond accepted, however, that with the exception of its directory inquiries service, where it has a 60% market share, line rental is the only area of the business to have seen price increases in recent years. In terms of fixed line calls and its broadband services, the company has been reducing its prices, putting the squeeze on competitors like Esat BT, Smart Telecom and the other 15 or 16 “active” players in this market.

Mary Harney, the tanaiste, who has taken a special interest in prices, is believed to be seething about the increase while Dermot Ahern, the minister for communications, said he might tighten the rules governing the way in which Comreg approves price increases.

Financiers, however, say there is a bigger game at play. Valentia, which is controlled by Tony O’Reilly, George Soros and Providence Equity Partners, is engaged in an exercise designed to fatten up revenues in advance of the company’s imminent flotation.

Rival operators estimate that the three price increases in line rental have added €100m to the company’s revenues. “It’s recurring revenue and they have a monopoly so it makes sense for them to do it in advance of an initial public offering (IPO),” says one corporate deal maker.

McRedmond, who refused to comment on the timing of the flotation, denies his rivals’ claims. “We would be doing this (line rental increase) if there was an IPO or if there wasn’t an IPO.”

Eircom has already established a steering committee to oversee the IPO. It comprises a number of senior executives, including Philip Nolan, the chief executive, and Peter Lynch, its finance chief. The company is understood to have identified three dates in the first six months of this year for a potential flotation but the odds have narrowed to a March launch to cash in on improved market sentiment.

The company is set to float in Dublin and London. Staff will be offered a tax-efficient exit for their 29.9% shareholding.

With the disaster of Eircom’s last stock market adventure still fresh in the minds of the mostly small investors who bought stock in 1999, the company is understood to have decided that it makes sense to bypass these investors this time around. Market sources say the company intends to sell directly to institutional investors.

It should be a relatively easy sell. Eircom still has an 80% share of the €2.04 billion Irish fixed line market, according to the latest figures from IDC. It controls 90% of the residential market and 82% of the business segment.

McRedmond estimates that 500,000 customers have left Eircom for rivals since 2000. But about 60% of these have returned, partly because the competition has disappointed but also because of Eircom’s aggressive win-back policies, which have been criticised by rivals. Comreg now requires a three-month “cooling-off” period before Eircom can attempt to win back lost business.

But McRedmond makes no apologies for the firm’s aggressive tactics. “Consumers aren’t idiots, they’re well capable of making their own choices.”

Eircom is also accused of deliberately dragging its feet on the introduction of wholesale line rental (WLR) and local loop unbundling (LLU) which would allow rivals access to the "last mile" of cable that runs from the telephone exchanges to houses.

(continued in next post)

Originally posted by Ripwave
They didn't have to have shares in eircom to benefit financially from the sale. Did any of them end up on the "inside" in Valentia?