Eircom retail and mobile could go to BT
Sunday July 22 2007
BRITISH telecoms giant BT is understood to have been in contact with Eircom owners, Babcock and Brown, about the possibility of buying Eircom's €1.8bn retail and mobile business.
Industry sources have told the Sunday Independent that BT was approached in recent weeks about its interest. No formal talks have yet been launched.
It is understood that Eircom has made approaches at different levels to other operators as well as large IT companies and telecoms businesses, including Orange, another major global telecoms player. Corporate finance sources have suggested that UPC, which owns the ntl cable television business, may also be interested.
Late last Friday, Swisscom, which had previously tried to buy Eircom, indicated that it was not in the market for another large acquisition.
It is expected that the retail business could be sold off for as much as €1bn while Meteor could fetch €800m. It is not yet clear whether Eircom will sell off the retail and mobile business to a single buyer or whether the operations will be split up.
One telecoms source suggested that Meteor, which has 800,000 subscribers, would be easier to sell, as disposing of Eircom's retail business would cause major regulatory issues, especially with regard to pricing and customer information.
Even the separate sale of Meteor would cause a significant hurdle for Eircom, as the company would then need to create a new mobile service for the retail arm, possibly through an MVNO agreement.
Buyers for the mobile arm could also include Hutchison Whampoa's 3 Mobile, which is growing rapidly in Ireland. Competition issues may stymie any interest from the likes of Vodafone or O2.
It is believed that Babcock is set on holding onto Eircom's wholesale business. This is the most valuable part of Eircom's operations as it includes the highly profitable telephone network.
The decision to hold onto the network may make Eircom somewhat less attractive to private equity players.
Banking sources have suggested that Eircom's retail arm would be much harder to load with debt than the cash generative wholesale arm. Despite this, a number of private equity players are likely to be approached as potential suitors. Some corporate financiers have suggested that Carlyle, which is bidding for Virgin Media and former Eircom owner Providence may be sounded out.
The prospect of Eircom being split up into several different parts to be sold to a multiple of buyers including telecoms and IT companies is in line with the trend in the industry. It has always been widely anticipated that the new Australian owners would radically split up Eircom, but the apparent speed of its action has surprised telecoms observers.
When Babcock bought Eircom for €2.4bn last year, it was the fifth time that the former state company had changed hands since 1999. The initial sale to the public was a public relations disaster for the company when small shareholders lost out.
Last week Eircom narrowly avoided a strike when Babcock baulked at paying the national pay agreement without extra productivity promises from the workforce.
After robust talks the management agreed to the two per cent while the unions agreed to talk about work practice improvements. An ongoing dispute would have hindered any negotiations with buyers of the retail or mobile divisions.
- SHANE ROSS NICK WEBB
