BABCOCK, the Australian investment bank, will next week formally table a recommended bid for Eircom, which will value Ireland’s biggest telecoms group at about €2.35 billion (£1.6 billion).

Babcock and Brown Capital, which has teamed up with Eircom’s Employee Share Ownership Trust (Esot), is expected to propose an offer of €2.20 a share — a premium of nearly 50 per cent on the €1.55 a share that investors paid at its flotation in 2004.

Eircom investors will also be entitled to a dividend of €0.052.

Sources close to the company said that the formal offer, which follows a long stake-building exercise by Babcock, should come “sometime early next week”.

Sir Anthony O’Reilly, the non-executive chairman who sold his shareholding in 2004, has said that he will step down if the deal is successful.

Phil Nolan, the chief executive, is also expected to leave. He had previously indicated an intention to take up a non-executive role in Britain, where he was previously chief executive of National Grid Transco.

Babcock, which once tried to acquire the local network of BT for £7.8 billion but was seen off by the former monopoly, plans to split Eircom into two parts — a retail business, which it could sell off, and a wholesale business selling services to other telecoms providers.

The Australian bank, which is being advised by JPMorgan, overcame competition from Swisscom, the Swiss state-owned incumbent. Its talks with the Irish group came to an abrupt end when the Swiss Government banned it from making foreign acquisitions.

The Babcock deal is slightly less favourable than the €2.40-a-share offer Eircom discussed with Swisscom.

Eircom, the Irish equivalent of BT, was privatised in 1999, at the top of the technology bubble.

In 2000, during a strategic hiatus, it sold off its mobile business, Eircell, to Vodafone.

A year later, a consortium put together by media mogul Sir Anthony successfully bid for the rump business and then in March 2004 floated it again, a deal that resulted in a €70 million gain for the media mogul.

Last year the business followed the lead set by other former state monopolies by buying back a mobile business when it acquired Meteor, the Republic’s third-biggest mobile phone business, for €420 million. Since then it has aggressively grown market share.

Together, Babcock and Esot now own more than 50 per cent of Eircom. Babcock controls 29.9 per cent of the stock while Esot owns 21.5 per cent.

Babcock surprised the market last October when it revealed that it had built up a 12.5 per cent stake in Eircom, mainly through buying rights to purchase new shares the group was issuing to fund its purchase of Meteor.

CENTRE STAGE

A successful Babcock bid for Eircom will thrust Pierre Danon, above, back into the spotlight. The Frenchman, who once ran BT’s retail division, would be expected to take over from Sir Anthony O’Reilly as part-time chairman of Eircom, to oversee its break-up. He is a senior adviser at JPMorgan in London, one of the banks advising Babcock on its bid. After leaving BT in 2004, he joined Cap Gemini, the consultancy and IT services group, as chief operating officer. He was sacked after it was revealed that he had been approached for the top job at Accor, the leisure group.

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