Eircom – we’ve been screwed

5th December 2002

The cheque from Eircom for my shares arrived a couple of weeks back ending my inglorious relationship with that company.

As I looked at the sum I had the damnedest feeling that I had been had; taken to the cleaners, been to the shop with big windows, sold a pup and so forth.

I’ve wanted to write about this before but it’s very hard to get the thing together – to see exactly how the bits fit into place. So I won’t bother. I’ll just outline the pieces of the whole shambles that give me grief. (You can pretend that each section is the opening scene from the movie ‘The Sting’. You can even whistle the tune).

1. The Government sells Eircom: But first it gives some away. It gives the workers 15 per cent for nothing and then 35 per cent to KPN and Telia for half nothing. This may have influenced the latter’s desire to sell quickly – they had already made a handsome profit.

The Government encouraged the small guy to buy. They employed diddley-eye music and twirling comely maidens to sell us our own dreams. There was some small print that said shares could go up or down. It didn’t mention that you would have to sell when the shares were really down whether you liked it or not.

The good bit is that the Government got £6 billion which it has put into a national pension fund. I don’t mind the Government getting top whack, that’s what it is supposed to do.

If anything the Government didn’t sell us enough of the company. It left us small guys with just 16.5 per cent of the company. There was 338,660 of us. We were disparate and weak.

There was just 55 big shareholders. They had 78 per cent and they had the run of the place.

2. Things go bad: After a short up Eircom went into a long down as did the entire technology sector. At the very worst time for telecoms stock the Eircom board decide to start selling things. Firstly, they decided to sell Eircell. There is no good reason for this except that shareholders might want to hold Vodafone shares instead of Eircom ones. We didn’t, but we didn’t matter.

Eircom negotiated a sale price when Vodafone shares were at stg£2.45. They had a get-out clause in case Vodafone dropped below stg£2.20.

Vodafone dropped below stg£2.20 and kept dropping. Still the deal went ahead.

Why? I haven’t a clue. Vodafone shares are currently around stg£1.85.

3. Eircom decide to sell everything: This is a genuine mystery. Why, in the middle of a technology crisis, do Eircom decide to sell out. Most small shareholders didn’t want to sell. They wanted to hold on believing that when the technology recession cleared Eircom would regain value.

Eircom has a lot going for it. It is a monopoly, being the only company to own the local loop, the so-called ‘last mile’ of cable into practically every home in the country. It has a huge property portfolio. And so forth.

Small shareholders weren’t panicking

4. The role of the workers: Once the bidding war got underway the telecom workers cut a deal with Tony O’Reilly. If they supported him he would allow them to increase their shareholding to 29.9 per cent. So there was no lack of confidence in the future within Eircom. Only in the board.

During the bidding the workers refused to accept higher offers from Denis O’Brien. If they did it would cost them later on. This means that the workers were trying to keep the price as low as possible even though many thousands of small shareholders were going to be badly stung. It was, and is, absolutely disgraceful.

Former shareholders should bear this in mind when they consider whether they should keep their business with Eircom.

5. The curious role of Comsource: Now call me a dogmatic old socialist if you like, but I always believed that companies existed to make as much money as they could. KPN and Telia, by this time called Comsource, owned 35 per cent of the Eircom. Comsource decided to back the Valentia bid at €1.365 and they agreed not to accept any other offer unless it was greater than €1.50.

Think about that for a minute. They would rather accept €1.365 than, say, €1.49 from Denis O’Brien’s E-Island group.

I ask you: is that not a bit odd? Nobody can apparently explain this but again it worked against the interests of small shareholders.

6. The silence of the Government: By this time the Eircom shambles was one topic that the Government didn’t want to hear about. The line was that Eircom was now a private company and the Government couldn’t be seen to interfere.

Firstly, the Government did have a direct interest in the shape of a 1.1 per cent retained shareholding in the company. It had a duty to the taxpayer to see that value maximised. It did precious little about it.

Secondly, Eircom represents a vital national interest. As I’ve pointed out it still has a monopoly on some (very valuable) parts of the telecom infrastructure.

7. The bitter taste: Who lost in all this? Denis O’Brien didn’t – he got £16 million from Eircom to cover his bidding expenses. The Government didn’t – it’s up about £6 billion. The workers didn’t – they doubled their shareholding. The banks didn’t – they moved their money on to more profitable pastures.

I can’t help the feeling that us 338,660 little guys were shafted. That’s a lot of us. The funny thing is, nobody gives a shite. There’s an election in five months. Hold that thought (and fade out ‘The Sting’ tune).