EIRCOM’S chief executive Philip Nolan came face to face for the first time last week with Robert Topfer, head of the telecom firm’s would-be suitor, Babcock & Brown Capital.

The Australian-based fund ended last week with a 27.25% holding in Eircom, following aggressive buying in the London and Dublin markets recently at a maximum of €2.20 a share.

“It was a chance for both of them to look into each other’s eyes to gauge how serious the other was about doing business,” said an informed source.

Eircom has not yet issued an official response to the fund’s preliminary approach, made in the middle of last month, but Morgan Stanley, Eircom’s adviser, has been continuing exploratory discussions with Babcock and its adviser, JP Morgan.

“There’s no doubt that the guys in Babcock are serious, having spent around €600m buying Eircom shares in the market, but this is likely to be a slow burner,” a source said.

Babcock would be obliged to make an offer for the rest of the company if its holding passed the 29.9% threshold.

If the fund manages to take over Eircom, it plans to split the business into separate networks and retail units and then sell off the consumer side — including Meteor, which Eircom bought last year from Western Wireless International for €420m.

The fund would have few problems raising loans against the networks business — its real area of interest — as it has a fairly predictable earnings stream. It has indicated that it would spend more than the €1 billion Eircom has earmarked for infrastructure development over the next five years.

Although Babcock & Brown says it has the financial muscle to fund the deal itself, it is understood to be keen to bring in a private equity partner at some stage. Sources have dismissed speculation in some quarters of the market that Cinven, a European buyout firm, is top of the queue to make a joint bid with Babcock & Brown.

The Australian group would also have to accommodate Eircom’s employee share ownership plan (Esop), which owns 21.65% of the group, in any new share capital structure. The Esop would not be interested in a cash offer as this would lead to significant tax liabilities.

Meanwhile, the Melbourne-based fund said last week it booked a net profit of A$25.52m (€15.7m) for the six months to the end of December 2005, largely on the back of A$9.4m dividend income from its sole investment in Eircom and interest from bank deposits.