Babcock & Brown ends stewardship of Eircom in deal

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The Irish Times wrote:

THE MAJORITY shareholder in Eircom, Babcockv& Brown Capital (BCM), has ended its management agreement with Australian investment firm Babcock & Brown.

The deal effectively ends Babcock & Brown’s stewardship of Eircom, although it retains a stake of 8 per cent in BCM.

Under the agreement, listed satellite fund BCM purchased management and other expertise from Babcock & Brown. It is understood the management agreement was due to run for another 22 years.

In 2007, BCM paid Aus$34 million (€19.93 million) in management fees to Babcock & Brown. This fee was calculated based on the value of the fund’s net tangible assets.

However, both parties have agreed to terminate this agreement for a once-off payment of Aus$5 million (€2.57 million) after a series of negotiations over the last four months. This payment will be funded from BCM’s cash reserves.

According to a statement from Babcock & Brown yesterday, the proposal no longer includes any future payments in the event of a change of “control of the company or of Eircom”.

BCM has said it is evaluating formal offers for the telco.

The deal is subject to shareholder approval at a BCM agm to be held on April 27th.

BCM initially proposed buying out the management agreement last November.

A spokesman for Eircom last night said apart from ending the annual payments there was “not really any significant direct impact” on the company.

“The figure for the buyout has been negotiated down to Aus$5 million since conversations on this started last November,” the spokesman added.

A BCM spokesman could not be reached for comment last night.

The BCM fund has lost more than 23 per cent of its value over the last 12 months.

BCM bought Eircom three years ago for €2.36 billion but recently wrote down the value of its investment by more than €700 million to reflect the deterioration in Eircom’s outlook and widening pension deficit.

Earlier this month Eircom reported a pretax loss of €791 million for the first half of its financial year.

BCM holds a majority stake in Eircom alongside the 35 per cent held by the worker-controlled Eircom employee share ownership trust (ESOT). Its only other asset is the Israeli Golden Pages.

Babcock Brown collapsed into bankruptcy this month after a group of foreign creditors voted against its rescue plan.

New Zealand owners of subordinated Babcock & Brown debt voted down a restructuring plan that would have seen noteholders receive just A$18,000 for a debt instrument with a face value of A$180 million.

Babcock & Brown has appointed Deloitte Touche Tohmatsu as voluntary administrators. – (Additional reporting: Financial Times )

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