Executive summary - Udo Bullmann

(2005 €610m) resulting in an EBITA margin on the same basis of 35%. Eircom’s basic earnings per share was €0.08and net debt as of March 2006 was €2,111m euros.2.2 Debt structureThe new ownership structure (BCMIH) will be financed by equity/contributions from the BCM group and the ESOTand debt financing underwritten by Barclay’s Capital, Credit Suisse, Deutsche Bank, Dresdner Kleinoort Wassersteinand JP Morgan. The total transaction value including the eircom debt and transaction costs is expected to beapproximately €4.8bn of which 80% (approximately €3.8bn) will be funded through debt finance with the balancefrom equity finance.2.3 Effects on job creation, investment and trainingThe eircom/union relationship has been characterised by a partnership model created when the union coalitionreceived 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 regimehave 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 thebusiness 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 intraining (and, investment more generally) has been difficult to secure from the new owners who espouse merely ashort-term vision.2.4 Corporate governanceThe ESOP, with its 35% stockholding, has the right to nominate two directors (one being the Vice Chairperson) tothe main board of eircom, consisting of six directors. Guarantees were sought and given to the union during the salethat existing employment conditions, including pension rights of the employees of eircom would be fullysafeguarded. All agreements will also be honoured in accordance with existing industrial relation provisions. Thenew management appears ready to work within the partnership framework, which currently exists between eircomand its workforce.The ESOT was a key aspect of the agreement entered into in 1999 between eircom and the union coalition. Thisagreement was the blueprint for transforming the state owned company into an entity capable of prospering in theemerging 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 ofseven, four union coalition members, one independent director and two company representatives. The ESOT willhave a significantly enhanced ability to influence the business following the most recent purchase. This will beparticularly 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 shareholdersIn eircom’s case the union coalition, which started with 14.9% in the original IPO, moved to 29.9% when it wastaken private. Dropped to 21% during the second IPO, ESOT now owns 35% of eircom. This must be also viewed onthe basis that ESOP members have to date received approximately €35k to €40k tax free in distributions. Negotiatedunder the latest deal the ESOT, which owned 100% of the issued Convertible Preference Shares (CPS), allowedBCMIH to acquire them for €144.2m. The ESOP intends to distribute this to members in transactions over the nextthree years.