Hedge funds and Private Equity - PES

share alternative. At that time the ESOT beneficiary held 21.4% of the ordinary shares. The bid
was successful and today the ESOT holds a 35% stake in the company with Babcock & Brown
controlling the rest.
The sale of eircom was conducted on the terms of a recommended offer under which Babcock
& Brown and the eircom Employee Share Ownership Trust jointly making the offer. BCM is an
Australian based investment fund that is listed on the Australian stock exchange.
BCM is permitted to invest in both Australian and overseas companies and in both listed and private
entities. The focus of BCM is on a concentrated portfolio with a flexible investment horizon.
For the financial year 2006 results, shared revenue for the period of €1,693m (2005 figure was
€1,598m) and EBITA before restructuring pay costs, non cash pension charges and profit on
disposal of property and investments of €601m (2005 €610m) resulting in an EBITA margin on
the same basis of 35%. Eircom’s basic earnings per share was €0.08 and net debt as of March
2006 was €2,111m euros.
2.2 Debt structure
The new ownership structure (BCMIH) will be financed by equity/contributions from the BCM
group and the ESOT and debt financing underwritten by Barclay’s Capital, Credit Suisse,
Deutsche Bank, Dresdner Kleinoort Wasserstein and JP Morgan. The total transaction value including
the eircom debt and transaction costs is expected to be approximately €4.8bn of which
80% (approximately €3.8bn) will be funded through debt finance with the balance from equity
finance.
2.3 Effects on job creation, investment and training
The eircom/union relationship has been characterised by a partnership model created when
the union coalition received its initial stockholding in 1999. In the seven years since there has
been a huge reduction in the workforce, achieved by the company offering (on an ongoing basis)
voluntary redundancy and early retirement schemes. Increased automation and competition balanced
with a reduction in revenues and a challenging regulatory regime have set the pace of the
agenda.
The average employee age profile is now approximately 50 years old. Recruitment is a priority in
certain areas of the business if eircom is to prosper. Investment and training are always difficult,
however, in the higher technical areas. For example, IP and NGN training is provided in a structured
manner. More complex still are the external aspects, although existing health and safety legislation
is of benefit to the workers in these employment areas. Investment in training (and,
investment more generally) has been difficult to secure from the new owners who espouse merely
a short-term vision.
2.4 Corporate governance
The ESOP, with its 35% stockholding, has the right to nominate two directors (one being the
Vice Chairperson) to the main board of eircom, consisting of six directors. Guarantees were
sought and given to the union during the sale that existing employment conditions, including
pension rights of the employees of eircom would be fully safeguarded. All agreements will also
be honoured in accordance with existing industrial relation provisions. The new management appears
ready to work within the partnership framework, which currently exists between eircom
and its workforce.
Annex – 21 Case studies
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