The Maximalist by Matt Cooper

Author:Matt Cooper [Cooper, Matt]
Language: eng
Format: epub
Publisher: Gill & Macmillan

CHAPTER TWO

DIALLING UP THE NUMBERS FOR EIRCOM

Although he had INM, Waterford Wedgwood, Arcon, Fitzwilton and other businesses demanding his attention, O’Reilly was still keen for something else to engage him. He chose Eircom, Ireland’s largest telecommunications company, which had joined the stock market in mid-1999 but was by now, as a result of the bursting of the dotcom bubble, in big trouble with angry shareholders because they had already lost sizeable chunks of their initial investments.

Rumours of O’Reilly’s supposed interest in buying Eircom first emerged in November 2000. Denis O’Brien had gone public that month with an initial offer of €2.25 billion to buy what would remain of Eircom once it had completed the sale of its mobile phone division to Vodafone. O’Brien was flush with cash after the sale of his phone business, both mobile and fixed, to BT nearly two years earlier, a sale that had made him more than €250 million richer and, thanks to his legal tax planning, those funds were fully available to him to make further investments. At this stage, few took too seriously the idea of an O’Reilly involvement in the bidding, not least the O’Brien camp. O’Reilly seemed stretched by his other investments and his knowledge of and interest in telecommunications was not considered to match O’Brien’s. The field seemed clear for O’Brien to make a major acquisition.

That Eircom was vulnerable to takeover was shocking. The government had sold Telecom Éireann, renamed Eircom, out of public ownership via a stock market flotation in 1999. It had raised €5.5 billion from investors, which was used to start the National Pension Reserve Fund. Initially, the sale was held out as an enormous success – an example of shareholder democracy that involved about 500,000 citizen investors. Some of those who bought shares at €3.90 each in the flotation sold them quickly at a sizeable profit. About 90% of the buyers held on; the share price slumped in late 2000 and early 2001, creating large losses for those who still held the shares.

Although Eircom had been caught up in an international trend, the so-called bursting of the ‘dot-com bubble’, the board panicked in the face of considerable media criticism. Eircom decided to sell Eircell, its mobile phone business, to Vodafone for a combination of cash and shares, at a price that was subsequently shown to be far too generous to the buyer. This left it as a traditional fixed-line telecoms business, with good assets that produced a sizeable cash-flow, but with nothing ‘sexy’ for the future, as the market wanted. Two of the foreign shareholders, telecoms groups KPN and Telia, which between them owned 35% of the Eircom shares, decided to bail. The share price slumped, making it vulnerable to takeover by a third party.

Eircom swiftly rebuffed O’Brien’s November 2000 approach, which was priced at a lowball €1 per share. O’Brien said it was a friendly offer and that he had no intention of making a bid that did not have the backing of the board. That would change.

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