Hedge funds and Private Equity - PES

202
The ESOT was a key aspect of the agreement entered into in 1999 between eircom and the
union coalition. This agreement was the blueprint for transforming the state owned company into
an entity capable of prospering in the emerging competitive telecommunications market in Ireland.
The union coalition is entitled to appoint a majority of the directors to the board of the ESOT. This
is a board of seven, four union coalition members, one independent director and two company
representatives. The ESOT will have a significantly enhanced ability to influence the business following
the most recent purchase. This will be particularly valuable against the unprecedented
challenges arising from technological and regulatory developments. Each change recognises
that such significant and rapid change requires considerable support from the workforce.
2.5 Protection of minority shareholders
In eircom’s case the union coalition, which started with 14.9% in the original IPO, moved to
29.9% when it was taken private. Dropped to 21% during the second IPO, ESOT now owns
35% of eircom. This must be also viewed on the basis that ESOP members have to date received
approximately €35k to €40k tax free in distributions. Negotiated under the latest deal the ESOT,
which owned 100% of the issued Convertible Preference Shares (CPS), allowed BCMIH to
acquire them for €144.2m. The ESOP intends to distribute this to members in transactions over
the next three years.
2.6 Management policies and shareholders activism
Owing to the high number of transactions that has occurred at eircom a disturbing amount of
money has been paid to an elite group at the top of the company. At the original sale the CEO
left with millions gained in the deal. When Valentia took the company private this pattern was repeated
among top management. The same can be said of the second IPO and the subsequent
BCMIH purchase. The amount paid to advisors acting for the management and the equity fund
on these corporate deals is also very difficult, if not impossible, to explain to the ordinary worker.
During all this, of course, the company’s debt level only increases. Currently this stands at
€3.8billion.
In summary these transactions have not brought stability to the business. High dividends and,
particularly, management fees are to the detriment of the long-term financial health of the company.
They affect the investment portfolio and the commitment is usually short term. The workers
and unions have keenly felt these changes but the ESOP has enabled certain financial returns
as well as some level of control of the changing environment.