Eircom owner BCM gets unsolicited offer of €95m

bealtine

ESOT likely to resist the bid for its partner, the troubled Australian outfit



By Ailish O'Hora Business News Editor

Friday April 17 2009

Eircom's main shareholder, Australian firm Babcock & Brown Capital (BCM), has received an unsolicited offer from a consortium involving a number of its former executives, including Rob Topfer -- the man who initiated the Babcock takeover of the former state telecoms firm for €2.4bn back in 2006.

The €95m offer is from Taemas Bridge, which also includes a number of other former executives at the failed investment bank Babcock & Brown which owns 8pc of BCM and involves Rex Comb, who stepped down as chief executive of Eircom just three months ago.

Plan

The plan, entitled "Project Liffey", would be funded by the consortium sourcing a loan through the takeover target that would use all of BCM's cash reserves and place a zero value on the assets.

Apart from Eircom, BCM's only other asset is the Israeli Golden Pages.

A new company, Liffey Bridge, would then use the remaining €285m cash in Eircom to renegotiate the company's debt levels, which are now just under €4bn.

It also includes proposals to keep Eircom's mobile arm Meteor separate.

"This plan would be a disaster for Eircom and Ireland Inc and would eliminate any chance of it raising funds in the future," said one industry source who didn't wish to be named. "It involves spending all of its reserves and leaving little else."

Others noted that this is not the only offer on the table with other potential investors offering more long-term proposals for Eircom.

It is understood the offer will be resisted by the Eircom Share Ownership Trust (ESOT), which represents thousands of current and former employees there, and owns 35pc of the firm.However, BCM investors may be tempted to pull out even if their return is only about 25pc compared with the value of their shares at a high of about AU$5.

The €1.05 per share offer would be paid in instalments if it was approved.

Steve Fitzpatrick, the general executive of the Communications Workers Union (CWU), said: "We are not happy with this proposal and will not support it. They had their chance with Eircom and failed, they should pack up and go."

Eircom also issued a statement last night stating that it does not support the Taemas Bridge proposal and believes it is damaging to eircom's interests and its future.

Covenants

While Eircom is still generating cash it is feared it could have problems meeting covenant commitments in the future.

The offer comes as the Government engages members of the telecommunications community to share their views on the future of Eircom.

Eircom executives are also involved in negotiations with unions in relation to over 1,000 redundancies at the firm.

The proposals from the consortium includes plans for compulsory redundancy, more realistic terms for job losses and wage freezes and reductions -- the latter has already been introduced by Eircom.

It is also planning to engage the ESOT and Taemas claims in its offer document that representatives are currently blocking change at Eircom.

Its plan to address the gaping hole in the Eircom pension fund includes a plan to move higher exposure to non-Irish executives, although in the current recessionary times market watchers questioned this move.

The offer, which has only received a lukewarm approach in Australian markets when BCM shares rose 11c to 95c, needs BCM shareholder approval.

The move has also been questioned in banking circles, who queried why Mr Topfer would return to the company and question its debt levels, given that he had overseen the company's development as an executive director.

BCM chairman Kerry Roxborough said the group would press on with plans to internalise the business, which would relinquish ties with Babcock and examine the capital structure of Eircom.

- Ailish O'Hora Business News Editor

Cabaal

Interesting, don't see how this take over will clear 4Billion debt though

crawler

Cabaal wrote: »

Interesting, don't see how this take over will clear 4Billion debt though

It wont - it will be "renegotiated"

bealtine

Here are the actual proposals:

http://newsstore.smh.com.au/apps/previewDocument.ac?docID=GCA00944600BCM&f=pdf

Sponge Bob

How can it be renegotiated ???

It is incredibly 'cheap' debt from just before the credit crunch when floating off risk was cheap . If you floated the same €4bn eircom debt on the capital markets today it would cost at least twice as much to pay interest on it ever year????

crawler

I never said it could - I was quoting.

I think the term they used in the presentation was "turn a crisis into an opportunity"

I am struggling to see any upside to this other than for existing shareholders and the newco.

Many of the slides in the slide deck on www.babcockbrowncapital.com scare the living hell out of me.

bealtine

crawler wrote: »

I never said it could - I was quoting.

I think the term they used in the presentation was "turn a crisis into an opportunity"

I am struggling to see any upside to this other than for existing shareholders and the newco.

Many of the slides in the slide deck on www.babcockbrowncapital.com scare the living hell out of me.

Seems to me to be a way of liberating any spare cash left in the kitty and giving it to "the management team"...

That's the same pdf as linked above...
It makes for "interesting" reading. They will try to hold a gun to the governments head with their comments that Irl can't afford a failing telco along with three failing banks...

Sponge Bob

Strikes me as a cackhanded ploy to get their hands on some 'Infrastructure Bond' money ...after BCM pays a few handsome bonuses with its cashpile first of course .

trekkypj

Proposals like this are basically the equivalent of the vultures picking over the carcass. Eircom will be stripped of its cash then when (not if) they fail to raise money from refinancing eircom will be declared bankrupt and the assets sold piecemeal.

Even the Aussie press have picked up on it.
http://business.smh.com.au/business/topfers-bid-for-bb-lolly-shop-20090416-a900.html


If the ESOT are opposed then it truly is a rotten deal. From what I've read, the proposal involves compulsory redundancies.

Better for all of us if Eircom is nationalised, functionally split in two - residential and networks.

Then sell off the residential unit and open up Eircom's network to everyone.
That is the best, only option.

Maybe a press release and a few letters to people in prominence might be in order?

Sponge Bob

trekkypj wrote: »

Proposals like this are basically the equivalent of the vultures picking over the carcass. Eircom will be stripped of its cash then when (not if) they fail to raise money from refinancing eircom will be declared bankrupt and the assets sold piecemeal.

Even the Aussie press have picked up on it.
http://business.smh.com.au/business/topfers-bid-for-bb-lolly-shop-20090416-a900.html

The aussie press stated very clearly what our press has not . eircom will collapse under the weight of its debt and pension liabilities at some stage

Eircom now is facing default on its €3.9 billion euros ($7.1 billion) of debt. That hasn't fazed Topfer. According to the proposal, he plans to use this crisis to advantage and will go to the banks, the government, the unions and the pension trustees to cut a deal. As far as threats go, the idea is to get rid of the veil altogether. Either give us some concessions, or lose the lot.

Topfers game plan is to pretend that it can be ' saved ' ..but Topfer has nothing to lose personally if not as he will be paid his au$5m per annum management fee anyway .

It is not worth saving until after the default / defeasance event and then at a fraction of the €4bn ...certainly less than half ....for full control .

trekkypj

Sponge Bob wrote: »

The aussie press stated very clearly what our press has not . eircom will collapse under the weight of its debt and pension liabilities at some stage



Topfers game plan is to pretend that it can be ' saved ' ..but Topfer has nothing to lose personally if not as he will be paid his au$5m per annum management fee anyway .

It is not worth saving until after the default / malfeasance event .

Perhaps - but if this bid goes through, thats 200m euro or so which won't be spent on the network. That means someone else will have to pay (or let the whole thing fall down like the telephone poles on my road).

Better to spend it on fibre or paying off creditors than paying some corporate raider.

Remember the State got €6 bn for Eircom when it was privatised. They'd actually get back state-built infrastructure for less than they sold it for if they bought it for say €100m and paid off the 4bn in debt over time.

And then they could sort out the access issues and open up the network. Eircom may not be worth saving but the network has to be protected to ensure that some level of service is maintained.

There's also the competition element to consider - the existing network needs to be opened up to other telcos for a much more reasonable price and a quicker response time than eircom does at the moment.

Re. getting the network replaced, the figure being bounced around to provide FTTC/FTTH universally is about €5bn. If the government secured funding over five years either through bonds, public-private partnership or EU structural funding, every house could have FTTH by 2014 and an unlimited choice of providers.

Realistically that has to be the objective here. If the government can't pay for it they should at least facilitate those who can by buying eircom and removing them as a barrier to providing a fibre network.

bealtine

trekkypj wrote: »

Remember the State got €6 bn for Eircom when it was privatised. They'd actually get back state-built infrastructure for less than they sold it for if they bought it for say €100m and paid off the 4bn in debt over time.


Realistically that has to be the objective here. If the government can't pay for it they should at least facilitate those who can by buying eircom and removing them as a barrier to providing a fibre network.

All that requires political will and the ability to admit publicly that the privatisation was ill-advised and basically badly thought out.
I can not foresee the government having either the will to undertake something so radical and admit they were wrong in the first place.

I think the government has washed its hands of the telecommunications industry (who needs phones anyway when you can have shiny mobiles) and would prefer the industry to come to some consensus on the issue.

I agree though with your sentiments, the access network needs to be opened up and quickly too. Opening the network is critical to Irl Inc.

RedLedbetter

One thing is for sure, the government will never admit they were wrong to privatise Eircom. If they were to nationalise it, it would be done with the exact same fanfare last seen when the company was privatised - "wehey, here we come to save the day"! They can hail Min. Ryan as a hero if he does nationalise it, I couldn't care less, as all I want to see is the company taken out of the hands of investment bodies. Besides, Eircom was only privatised in name, not in nature another key factor in why we are where we are (but that's another debate).

Maybe the timing is all wrong for this, maybe it couldn't be better placed?
NBS: investment of €223m for a lame duck. It's now looking like majority share in Eircom could be purchased for €100m - €125m! Hope the dept. of comms. kept the receipt for the NBS as it's time to go looking for a refund.

I can't see a way out for Eircom, apart from nationalisation? The BCM stake is up for grabs and it's unlikely that a telco will come in with that kind of capital and take on the debt. I certainly can't see a better scenario for the consumer, as the longterm goal has to be opening up the network and nationalisation is currently the only route to that.

R.

watty

If they achieve this it will load more debt to eircom and they will try hard to sell Meteor.

It's truly awful that we have no regulation to stop this kind of corporate tyre slashing.

dahamsta

What's most laughable about this isn't the scumbag offer, it's the fact that if it went ahead - it won't of course, I'm just saying - our friendly captured regulators ComReg and the Competition Commission would flash a goofy grin and say it's all A-OK. Biffo would probably give a big thumbs-up on camera too.

Sponge Bob

More Here from the Australian Financial Review

Babcock and Brown :eek: is part financing an operation called Tricom which in turn is financing Taemas Bridge .

Introducing Tricom ....look who the MD is ??

http://www.tricom.com.au/internal.aspx?Id=23

and more

http://www.tricom.com.au/news.aspx?nid=13

Tricom Recapitalised

As you may be aware, the recapitalisation of Tricom has been completed. The recapitalisation results in a number of important changes for our clients.

• A strong financial position
• A renewed focus on core businesses
• A new shareholder and management team committed to our objectives
• A continued commitment to client service

Tricom has been recapitalised by isolating all legacy assets and legacy liabilities. As a result, Tricom’s new balance sheet has no debt and sufficient regulatory capital to give it a capital ratio far exceeding the minimum requirements. A committed A$20m working capital facility and the isolating of all legacy issues will allow Tricom’s management and staff to focus on building the future.

Tricom has a new major shareholder, Taemas Bridge and a new Managing Director, Rob Topfer. Robert’s focus will be to deliver an operations and compliance regime that will match our front office capability. Our CEO, Lance Rosenberg, will work closely with Robert and continue to provide leadership to the equity capital markets business.

Clients will benefit from our renewed focus on operations with a new team including enhanced legal, risk and compliance. Their goal is to provide a seamless, timely and accurate service to clients across each product area. In the near term, we propose to develop a client relationship group who will ensure that client needs are satisfied.

Notwithstanding the turmoil that has overtaken other participants in our industry, Tricom and its staff take substantial pride in the fact that no client has lost funds held with Tricom. With the support of our financiers and the constructive approach of the regulators, we have been able to move forward with our client responsibilities and reputation intact.

netwhizkid

Fine Gael has called for Eircom to be nationalised in todays papers and the money the Government would spend would be amongst the best ever. The Gov has given nothing to Three yet and they are certainly not giving €250million as is the smoke and mirrors version. The NBS should be cancelled and Eircom bought out and ran as is for at least a year to give the state a quick buck back to pay the initial €100 or so million it paid as Eircom is actually quite profitable but for the massive debt load and fact it probably the worlds only Private company with public servents as workers and said wage and productivity levels.

What is needed is to save the network and milk the retail for a little bit before selling it on and then introduce a new severance package to begin trimming out the old guard of P&T and Telecom Eireann staff that still make up the bulk of the staff and begin introducing young highly experienced & educated Irish IT professionals on good solid well paying jobs with the skills and know how but without the Civil service laziness ideology.

The new network could be built slowly up using profits from the industry and reinvest for FTTH/P and replace the copper. Slash line rental to around €10/month as it is killing the company and get Broadband (100mb/s) rolled out. The owners of Eircom since the privatisation and subsequent small shareholder swindle have done nothing only applied a scorched earth slash and burn policy of asset stripping, loading the company with Debt and a backward myopic view towards technology and the bottom line was fat cat payoffs while Broadband Ireland went down the swanny and ComWreck gave prices hikes as everything suffered.

Eircom had the opportunity to become an excellent example of a successful Privatisation but totally failed due a mixture of things, but mainly I blame both the Government and comWreck as Eircom was ran wrecklessly on the drug of cheap and easy credit while like our banks de-regulation left them get away with corporate murder.

Eircom could have expanded to be an International player like BT did and be making €1 billion a year profit (from Ireland alone) today if a business man owned it but it was never owned by a true business people only greedy fat cat cut throat get rich quick idiots who went along and killed the goose who laid the golden egg and now they are back to pick the bones clean and add a bit of ketchup to her rotten feathers.

It is now high time to act and take back this vital strategic piece of National Infrastructure and give the people choice, freedom and quality of service and if Fianna Fail and the Greens (who infairness should be in favour as left of centre) refuse to do it then Simon Coveney apparently says FG will.

dahamsta

There's so much wrong, impractical and ultimately impossible in that post, I wouldn't know where to start. Let's add another €4bn to our debt collection, it'll be a hoot!

Sponge Bob

Nationalising eircom as is with €4bn in debt is lunacy .

Let it collapse first ( a matter of when not if).

Let the subordinate tranches take their wipeout .

Let the senior tranches take their hit . Look at buying it thereafter ...minus much of the debt .

an eircom collapse is actually a collapse of a pyramid of debt spread around the world in the form of bonds, it does not matter day to day because services will be provided as always .

The australians somehow think that the Irish government is weak and will move to prevent a collapse of the bond structure ( OR BAIL IT OUT) .

The Irish government is indeed particularly weak and Ryan is made of political coloured water but none of that is a good enough reason to protect or in any way underwrite the bond structure that Topfer and Comb et al themselves created in 2006 .

It will die left to its own devices, let it.

croo

Nationalise Eircom! :eek:
I say take off and nuke the site from orbit - it’s the only way to be sure…

... lets get rid of this monopoly once and for all.

But I can believe FG will push for nationalisation just so they can score some points saying it was a disastrous FF policy to privatise it in the first place. Whereas the real disaster it has been ComReg and the fact is has no balls. We'll probably only find out why in 10 years at some other tribunal.

watty

Sponge Bob wrote: »

Nationalising eircom as is with €4bn in debt is lunacy .

Let it collapse first ( a matter of when not if).

.. snip ..
an eircom collapse is actually a collapse of a pyramid of debt spread around the world in the form of bonds, it does not matter day to day because services will be provided as always .

.. snip ..

yes.

But any further leveraged buyouts or asset stripping by take-over should be blocked by financial regulator or legislation.

The Taemas Bridge is an attempt to simply move it sideways from BCM without ANY additional investment and loading eircom with more debt.

Mr_Man

Since that the bid is for the corporate entity which owns Eircom, and not Eircom itself there would seem to be little that any regulator in Ireland could do to stop a successful takeover of BCM.

Given the state of the country's finances I cant see there being any way the government would assume the debt Eircom is currently collapsing under.

It seems that there are moves underway to slim down the workforce, reduce the cost base and reorganize the debt. This may prove beneficial when the eventual collapse comes but it looks like the country will have to endure another couple of years of minimal investment in the network and a further decline in the broadband services relative to our competitors. Once the collapse comes, the government should then step in to take over the network and make the necessary investment, perhaps as part of the PPP, to produce a true NGN which is open to all at reasonable cost. That assumes off course that the government hasn't bakrupted the country in the mean time

M.

Sponge Bob

I see hedge fund "vultures" Och - Ziff have taken a position in BCM too . A right feeding frenzy this is becoming

Sponge Bob

Letter to shareholders

http://www.asx.com.au/asxpdf/20090421/pdf/31h4pnf74xnwhc.pdf

restore tarnished reputation.... with stakeholders...including ...esot..government...regulator

Several 'proposals' for takeover are in play but only one is in the public domain, eg Topfer/Taemasbridge

a number have been invited to carry out due diligence , this means 3 proposals as they have not invited Topfer to do a due diligence . We know of the Singapore one ...is the other Och-Ziff :eek:

Page 4 has some nuggets that may or may not come to pass, the wireless launch is meteor 3g but they also 'plan' to bring fibre closer to the customer .