Eircom floatation details- [article]

mike65

Free free to move this to buisness/etc but I thought you'd all like to read this.

from unison.ie

Preparations for an April stock market flotation of Eircom are at an advanced stage, and if the markets continue to remain strong, the company could list even sooner, the Irish Independent has learned.

Merchant banker Goldman Sachs, which owns around 1pc of the company, has already done a lot of the background work on a float. The stock market flotation will see the shares offered to a range of international and Irish institutions, with no retail element. This means the shares will not be offered to the general public.

Eircom has not yet made the final decision to push the button on a float, but rising stock markets and higher valuations for telecommunications shares in particular have presented its shareholders with a possible window to go for a listing.

The flotation should give a boost to the Irish Stock Exchange, which hasn't seen a flotation for three years, and where numerous companies have exited the exchange through takeovers and management buyouts.

Presentations to potential investors, which have not yet taken place, are likely to emphasise the utility-style value of the company with strong cash flows and a strong dividend, rather than a high-growth short-term play. A spokesman for Eircom declined to comment on the speculation.

Discussions are also taking place with the Employee Share Ownership Trust (ESOP), which owns 29.9pc of the former State telecommunications company.

The ESOP has yet to decide whether it will sell shares in the event of a flotation or whether it will try to retain its existing holding. If it dilutes its stake, it is not likely to bring it below 25pc.

It is too early to forecast what kind of value will be placed on Eircom should it come to the market. The Valentia consortium bought the telecommunications company less than two years ago for €3bn. This was financed through around €900m of their own money and just over €2bn in borrowings.

Last year, they took out €540m in dividends, which means they would need to get around €630m in order to make a 30pc return on their money.

Eircom currently carries €2.4bn in debt, so if it was floated at five times its 2003 earnings before interest depreciation and amortisation (EBITDA) of €600m, it would leave an equity valuation of around €600m, plus debts.

With the ESOP unlikely to sell off much of its stake, it would leave around 60pc of the company's equity available in a float.

Eircom is likely to approach institutional investors in Dublin, London and Frankfurt in the run-up to any float.

The possibility of an Eircom flotation on the horizon in the short term comes as investment bank UBS in London said global stock markets are braced for $325bn of telecom floats, as more state-controlled telecoms groups prepare to float their stakes.

Mike.

SkepticOne

The important thing here is that the company will still be in private ownership. Therefore all corporate strategy will be in terms of maximising profits for their shareholders. This has been the case since it was privatised in 1999 and will continue to be the case.

The only hope is that the government can be persuaded to encourage real competition. Otherwise we are forced to rely on an ineffective regulator to keep prices down on Eircom's limited range of products. No thanks!

Capt'n Midnight

Here's a mad idea - couldn't the govt pension fund buy it - by the time the pension fund is due to pay out, good management might stop the rot and enable people to trust the brand etc.

Apart from the last mile copper and the exchanges and molopoly position and a defacto veto over comreg what assets does the company still have ?

Goodwill - nearly negative
Technicians - much of the work is out-sourced
Buildings - wouldn't supprise me if these get sold for
Fibre - much supplied by the Govt and there is a lot of dark fibre for user by other telecoms.

spongebob

they have to buy some of it.

SkepticOne

Although it has its attractions, the idea of buying back Eircom's infrastructure would be suboptimal imo. If you were building a network today with the current capability of Eircom's you would not do it in the same way. There are far cheaper methods that offer much greater capabilities than the current Eircom network.

Most of Eircom's value (to its shareholders, not the country) lies in its ubiquity which has deterred competition allowing them to offer substandard services at high prices. This is hugely attractive to the likes of Valentia but if the government is looking for an upgraded telco system it needs to look beyond the monopoly value of the network.

If the Government attempted to purchase Eircom at less than the market value, they would be open to court action by Valentia which they could lose.

The other option would be to build a parallel network based on the best technology available today. It is unlikely that this would be similar to Eircom's network with its individual copper pairs running back to exchanges (although there are some advantages here). It is more likely to be either a) wireless, b) fibre/coax hybred or c) pure fibre. The last option might work out too expensive but the other two would provide superior services at a reduced cost and capital expenditure to Eircom's network. There may be other options I haven't considered.

But this too, I would regard as not the best solution. Both of the above - buying back Eircoms network or building an full alternative network would still leave the country with a monopoly albeit a publically owned one. There were plenty of problems when the government ran Telecom Eireann and these problems would return.

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.

BigEejit

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.

There are? ...

mike65

Nothing to do with the floatation per se, but this caught my eye in the Sunday Times -

the Employee Share Ownership Trust members will receive €12,700 each per year until all shares have been distributed. The ESOT have decided against offloading its entire stake at floatation time on the basis it would attact 20% captial gains tax.

I had to smile, the union leadership would like the CGT to be 40%....

Mike.

Victor

... go round and round, round and round ....

http://www.breakingnews.ie/2004/01/19/story130223.html

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.

seamus

/me shakes head

Despite what everyone said about Valentia, nobody listened. Bertie: Buy back eircom and refloat them as retail only. Bite the bullet and reclaim the infrastructure. (IMO )

spongebob

Originally posted by seamus
Bite the bullet and reclaim the infrastructure. (IMO )

Make sure that Biddy is floated back off with retail, we only want useful people in the Network division.

M

Mr_Man

But what about all those letters biddy would be looking for from bertie and the other spineless wonders we call minister.......

M.

spongebob

ahh

No, they can have their letters of comfort or their 30% but not both, once 4ircon is privatised then the ESOP has 2 choices.

1. Increase their share to 51% from 30% and get a majority .
2. Cach in and reduce their share to a nominal 10% to get a second director on board .

If they still need the letters of comfort after the amount oif money they have drained out of the taxpayer already then they should hand over 2/3 of their share to the government in return for the letters.

M

mike65

And here...

http://www.boards.ie/vbulletin/showthread.php?s=&threadid=135710

Mike.

sceptre

Threads merged

Very Good article in the last sunday times business section

sceptre

This one?

(found it through the timesonline.co.uk search so don't have a direct link)

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)

sceptre

(continued)

Eircom and Comreg have been at loggerheads over the past two years in relation to both WLR and LLU. Comreg is currently in the middle of a fresh consultation period that it hopes will break the logjam. Rivals are not optimistic. “It’s a classic tactic. There’s no way that Eircom wants the local loop unbundled in advance of a flotation, why would they?” asks one seasoned analyst.

The company is also set to re-enter the mobile phone market when the non-compete clause, signed with Vodafone following its acquisition of Eircell, expires in May.

Insiders say a take-over of Meteor, the struggling third player in the market, has been ruled out. The more likely option is to become a virtual operator by buying minutes from an existing player.

Eircom’s business has also been streamlined over the past couple of years. Since Valentia took the reins, its Golden Pages subsidiary and retail network have been divested, yielding a windfall of €200m for the company’s owners. The staff headcount has also fallen from 10,500 at the time of the take-over to its current level of about 8,000. This is due to fall to 7,000 within two years.

Figures for the three months ending September 2003 show pre-tax and post-interest payment losses of €3m, compared with €26m for the same period in 2002.

Eircom was also recapitalised last year with its owners receiving €512m following a €2.4 billion refinancing of the group. Its backers originally borrowed €2.2 billion to finance the purchase of Eircom. “It was a typical instrument for a public company and is a signal of its intent to return to that arena,” says one fund manager. “It’s now a utility-type stock and if they’re going to sell, the timing is right.”

BROWN had a difficult 2001. In addition to losing his shirt on Eircom, he was laid off by his employer. He bought a taxi licence when the market was deregulated and still holds the shares in Vodafone he received when Eircell was demerged from Eircom. He reckons the shares would need to double in value from their current level of about £1.50 to recoup his original investment.

Brown is clear about one thing, however. If Eircom does float this year, he won’t be an investor. “I’m still paying off the loan from the last time — once bitten, twice shy.

Ripwave

Originally posted by sceptre
“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.

Any lawyers out there? I've never really understood why the directors obvious failure of fiduciary responsibility to shareholders didn't get them in trouble.

(Valentia had effective control of over half the shares before they made their bid, so they only needed to get the institutional investors on board to make their "offer" compulsory. The "small investors", who were in for the long haul had nothing to gain, and couldn't even write their losses of against other capital gains, so the Directors "recommendation" was clearly not in the best interests of shareholders. Any director who benefitted finacially from the sale would certainly be open to charges of conflict of interest. Are there any penalties in law for people with fiduciary responsibility who act against the interest of their shareholders?)

Victor

Originally posted by Ripwave
Any director who benefitted finacially from the sale would certainly be open to charges of conflict of interest.

Few did, because few enough directors had shares in the company.

mike65

Originally posted by Victor
Few did, because few enough directors had shares in the company.

Some did'nt have any shares at all!

I forgot about the famous sharesholders meeting.

http://archives.tcm.ie/irishexaminer/2001/05/12/story2732.asp

Mike.

Ripwave

Originally posted by Victor
Few did, because few enough directors had shares in the company.

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?

Victor

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?

Not many, the Dutch guys left when they sold their share. Alfie and buddies were retired. So at most there would be the ESOP board members (effectively part of Valentia for the purposes of the delisting) and a few others. You could check their website to see if they have Directors CVs, etc.