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Time to sell Irish shares

Take a look at the graph below. Not much doubt there. This year the Iseq is up almost 7 per cent. A gravity-defying performance. Last week, the Dow was down 3 per cent, the Standard & Poors 9 per cent, the Footsie 100 by 14 per cent. Not to mention the catastrophic Nikkei in Ja

ARE YOUR Irish shares overvalued?

Take a look at the graph below. Not much doubt there. This year the Iseq is up almost 7 per cent. A gravity-defying performance. Last week, the Dow was down 3 per cent, the Standard & Poors 9 per cent, the Footsie 100 by 14 per cent. Not to mention the catastrophic Nikkei in Japan. The world's markets are out of step with little Ireland. Why?

On Friday I decided to torture myself a little. So I rang up a few brokers to ask them if it was time to dump Irish shares. And then the bull began in earnest.

No, the market was, miraculously, still a "buy". One of the best bull merchants had the answer: Elan was the problem, he explained patiently. Elan comprises 25 per cent of the Iseq and has had a bumper year. A fair diversion, but it hardly explains a 20 per cent difference in performance between the Irish and UK stock markets.

Luckily, the bull has many versions. They all lead to the same conclusion: whatever the evidence, the Irish market is unbeatable value.

One of the torturers waffled on, insisting that "valuations are not overstretched". Another explained that the Irish market was a "market of stocks, not a stock market", meaning every share has its own spoof story. Which it has, believe me.

A more sophisticated torturer explained that the Iseq had "defensive characteristics". And the last joker suggested that Irish shares were cheap because the bulk of the Iseq was made up of "cyclical stocks".

All very comforting broker-speak; but it will be cold comfort for us when the Irish market catches up with the rest of the world in due course.

If you are talking to your stockbroker heed one health warning: Irish institutions are still sellers of Irish stocks, a huge negative for share prices here; Irish brokers are scouring the current desert of buyers in search of mugs to take up the overhang. Are you one of those mugs?

None of the brokers' lame explanations will carry an ounce of weight when the economic downturn begins to bite here. For years we have lived under the self-deception that Ireland could, somehow, escape a global decline.

This has been encouraged by "respected" economists, working for brokers and banks with a vested interest in talking up the economy. As news of multinational lay-offs breaks daily, they are "revising" forecasts downwards.

Stockbrokers are now at the same game, squeezing the last drop of commission out of the fading boom. Irish shares are overvalued.

Sell. Or, at least switch to the Dow, Footsie or Nikkei.

Eircom smells of stalemate

THE share price of Eircom is ominously obstinate. All week it has lurked around the 1.33 mark. Yet Denis O'Brien is bidding 1.36. And the market confidently waits for Sir Anthony O'Reilly's Valentia to make an improved offer. O'Brien has hinted that he may make an even higher bid. In a normal takeover the share price would reflect these moves. The price ought to be at least 1.38. This is no normal takeover.

The reason? The market smells stalemate. Stalemate equals disaster for you and me and other small shareholders. There is a slight danger that the price could run all the way back to 86, where it stood before the bidding war began.

If the employees refuse to deal with Denis, his eIsland bid is dead. Last week they voted by 83 per cent to 16 to join the Valentia consortium, despite its lower price tag. The Employee Share Option Trust (ESOT) has made its position clear: better dead than Denis.

If they stick to this line it will be almost impossible for him to secure the votes needed to capture Eircom. Deadlock looms.

And what happens if Valentia then walks away, leaving Denis as the highest bidder? Not yet likely, but possible. Sir Anthony is not going to pay a silly price for Eircom.

Plenty of observers are casting doubt on the commercial sense of the current bidding levels. If Valentia pulls out and the ESOT refuses to play ball with Denis, the result will be no takeover. The price could tumble back below 1.

And we could all tumble back into the arms of Alfie Kane.

God forbid. Although, judging from last week's offer from eIsland, the O'Brien consortium is set to look after Alfie. If their offer succeeds they have promised poor Alfie a sweetener. They have agreed to the board's proposal to raise Alfie's pension to 217,000 per annum. This will cost Eircom (you and me) nearly a million pounds.

No explanation is given in the Offer Document for this largesse to Alfie. Is it because of the wonderful share performance? Is it for his glorious tenure at the helm of the company? Or is it in exchange for his "irrevocable undertaking" to pledge a pitiful 2,652 shares behind O'Brien?

Alfie's irrevocables are irrelevant, but other "irrevocables" are this weekend concentrating the minds of Valentia's advisers. The action again centres around Comsource, the kingmakers with the crucial 35 per cent holding.

Comsource, still tied into Valentia until Monday week, are being wooed. This time do not expect Valentia to give the Scandinavians an "out". This time the "irrevocable" could be irrevocable. If that happens the game is over.

But Valentia will need to make it worth Comsource's while. I imagine that they will.

As small shareholders we must hope for a firm result. And another bid. Deadlock would be a disaster. Let us pray that this takeover does not land us back at last December's share price levels. Or worse still, abandoned by Sir Anthony O'Reilly and Denis O'Brien to the tender mercies of the old board and the old share price.