Eircom approves wireless demerger

Selling out to Vodafone is unlikely to be good for small shareholders

Eircom, Ireland's leading telecoms operator, looked set to win shareholder approval on Friday for the demerger of Eircell, its mobile phone business.

Eircom spokeswoman Majella Fitzpatrick said 1.5 billion proxy votes had been cast in favour of the demerger, with 7.3 million against.

She said shareholders attending an extraordinary general meeting in Dublin had voted overwhelmingly in favour of the plan although final results were not yet available.

Eircell's demerger will almost certainly lead to its acquisition by the UK's Vodafone.

Majority of votes so far

Last December, Eircom said it had agreed a deal with Vodafone under which Eircom shareholders would receive one share in Eircell for each one they held in the parent company.

Eircell shareholders would then be asked to vote on a deal offering them 0.9478 Vodafone shares for every two Eircell shares they held.

Ms Fitzpatrick said more than 50% of votes received so far had supported the sale to Vodafone although voting remained open until Sunday.

A simple majority is required for the deal to go through.

Less good for small investors

Analysts said both votes would be pushed through by the support of large institutions.

Dutch operator KPN is one of Eircom's largest shareholders (through its involvement in holding company Comsource) and is known to be keen on a sale, wanting to use the cash it will generate to pay down debts.

Analysts said the Eircell deal was less good for small shareholders, who had paid 3.9 euros (£2.41) a share to buy into Eircom at privatisation in 1999 and were still waiting for a return on their investment.

Offloading Eircom's prime asset at a time of depressed telecoms values was not likely to be in their best interests, the analysts said.

Eircom shares were trading at about 2.6 euros in Dublin on Friday afternoon while Vodafone shares were at £2.03 (3.29 euros) in London.

Retrenchment

Under the deal with Vodafone, Eircom has agreed not to re-enter the Irish wireless market for at least three years.

After a period of turbulence for telecoms companies worldwide, Eircom has decided to retrench, concentrating on its domestic fixed-line business and cutting costs.

Capital spending is being trimmed, several hundred staff laid off, multimedia activities scaled back and international ambitions scrapped.

The attention of Eircom investors will now turn to approaches for the company, which have come from a consortium headed by Irish tycoon Tony O'Reilly and speculator and financier George Soros as well as groups led by Irish entrepreneurs Denis O'Brien and Dermot Desmond.