Eircom share price tanking.

spongebob

Down from €1.55 to €1.45 in 2 weeks. Still dropping slowly. Thats not the interesting bit though

As part of the float, Morgan Stanley (huge international bank) underwrote 10% of the issued shares.....undertook to buy them if nobody else wanted to but hoped they would not have to and could pocket their fees for doing nothing. In practise they are a buyer of last resort to firm up the share price.

It was an intervention of theirs yesterday that firmed the price at €1.45, it had fallen to €1.43 at one point. The problem is that Morgan Stanley now own 9.13% of Eircom and that they are committed to buy 10% max. Once their shareholding reaches that level they will stop buying in and the price will resume its downward slide.

At some point the value of the company will hit a level that will make the bondholders very very nervous . That point will be reached around June by my reckoning. The bondholders can force certain ringfencing of revenues though that will reduce the funds available for the expected Dividend . As Biddy is some 7% worse off than she was a fortnight ago the ability of the ESOP to 'intervene' is being dramatically eroded . If the remaining investors found out that the ESOP were trying to increase their shareholding to 40% then they would head for the doors like lemmings anyway. If there is no dividend then ......... guess which way they will head . Then the short sellers and hedges arrive in to leverage spread spikes in an otherwise downward trending curve.

At about €1 per share the spectre of re-nationalisation would rear its head again, but only if the ESOP agreed to sell first though . I would not waste a penny of taxpayers money in order to have Con Scanlon telling me what to do as a major shareholder. They had their chance to make their money and now it appears that they may just have blown it, the greedy muppets.

M

BigEejit

I really hope that youre right Muck, but I think that this governemnt are handy at making a balls up of anything they put their hand to and are experts at throwing good money after bad if there is a few votes in the offing.

sceptre

... as long as the national pension fund managers don't fall asleep and buy a bucketload of shares in June...

iwb

Has an incumbent ever gone bust or screwed itself really badly? If so, what happened?
What would happen if a community bought the local infrastructure from Eircom? (assuming they would sell it of course)

Xian

Eircom shares well overpriced at €1.55
The Phoenix, March 26, 2004

Eircom is borrowed up to its tonsils with €2,2 billion of debt. Even according to its own published data, the company is actually suffering from falling voice traffic, with the published accounts recording net losses over each of the last three years. Do not buy at €1.55

[...]To work on the theory that a company can use part of its cash flow - which in Eircom's case mainly represents its depreciation charge, currently running at €368m pa - not to replace assets but rather to pay out dividends, is a recipe for disaster.

[Eircom's capital expenditure] was running at €410m in the year to March 2001 and dropped to €239m in the year to March 2003 and a tiny €105m for the nine months to December 2003. This rate of capital expenditure is totally inadequate to maintain the integrity of the existing system and is clear accounting support for the critics' view that Eircom's copper wire and exchange infrastructure is suffering serious degradation.

[...]Valuing Eircom shares on the basis of the €1.55 price fixed for the share float last week, and ignoring exceptionals, it looks as if the shares are going out on a historic 18.5 p/e - an absolutely crazy rating for a company in Eircom's state.

Punters should avoid these shares and that is even without taking account of the €200 million pension deficit hidden inside the accounts and the fact that the company has begun to suffer from an actual reduction in volume of voice traffic carried.

[...]Do not touch these shares.

Paddy20

Goody, goody. Paddy rubs hands with glee.

P. :ninja:

Da Man

I have never understood this nation's fascination with Eircom shares. There are obviously thousands of companies that are better managed that are better to invest in.

Being public, Eircom will have to get their act together and start producing some good numbers. That will primarily come out of an innovative product offering. There's nothing particularly unusual about Eircom. If the management doesn't produce the numbers, they will most likely lose their jobs.

I don't really buy the notion that Eircom can't grow. This is an underdeveloped country in terms of [telecoms] infrastructure with lots of growth potential.

sceptre

Originally posted by iwb
Has an incumbent ever gone bust or screwed itself really badly? If so, what happened?

Off the top of my head I can think of Irish Shipping here or Railtrack in the UK. Railtrack's a more relevant example, with regard to essential infrastructure - with Irish Shipping it was just job losses and boat sales. You could also make the case that PMPA going bust in the early 80s would be another example of a "what if" scenario where it was a situation where the government had to step in to stop all hell breaking loose.

ElNino

Originally posted by Muck
If the remaining investors found out that the ESOP were trying to increase their shareholding to 40% then they would head for the doors like lemmings anyway.
M

Under Stock Exchange rules the ESOP can't raise their shareholding above 29.99% without having to make a formal bid to all the other shareholders for the rest of the company. Therefore the ESOP won't be supporting the share price

Is1ldur

I got burned in the first floatation, and it really seemed silly for the company to go down that road again. What the hell is anyone doing buying shares in the company, never mind the price they were set at?

captainpat

Thankfully, the eircom flotation was limited to big corporate investors, who do not subscribe to a "negative-attitude" source such as Boards.ie. Perhaps some bigger fingers will get burned this time, giving some satisfaction to the original owners who lost shirts buying what they had already owned first time around.

spongebob

Originally posted by sceptre
Off the top of my head I can think of .... Railtrack in the UK.

Great minds think alike Sceptre.

M

Fallschirmjager

lads, i dont want to rain on anyones parade here...BUT

if they keep going lower i would guess they have 2 options

reduce headcount (difficult since the fecking union owns a large chunk) but some redundancies are likely

reduce services, increase prices

AND we all know what that means....particulalrly the services part....

spongebob

Originally posted by Fallschirmjager
lads, i dont want to rain on anyones parade here...BUT

if they keep going lower i would guess they have 2 options

reduce headcount (difficult since the fecking union owns a large chunk) but some redundancies are likely

€1.36 last night but it bounced up this morning as the Underwriters mopped up the last of their quota.

Do remember the math of the 'Employee' chunk

1. The 'employees' , about 13000 of them, were those working for Eircom and Eircell in about 1997. OVER HALF have left since . The majority of shares, held by the ESOP, are therefore held on behalf of ex employees.

2. Of the current staff of 8000 or so, some 1500-2000 have joined SINCE 1997 and were refused membership of the ESOP .

They cannot increase prices as the RPI has dropped so much

M

dahamsta

Why would anyone in their right mind have bought these shares? I realise that there's money to be had from shares going down but I never really got that to be honest -- anyone care to explain it to me? Because to be perfectly frank at the moment I'm of the opinion that anyone that bought shares this time around is a complete fúcking retard. In fact that's probably unfair to the mentally handicapped community.

adam

nahdoic

It's called short selling!

You sell a stock you don't own, but you guarantee that you will buy that stock at a later date no matter what the price.

If it goes down in price to say 1.37 - wohey you just made 18c a share!

If it goes up in price - you're screwed. When you buy normal shares you can only lose all your money i.e. the stock price goes from 1.55 to 0. With short selling you can lose an unlimited amount of money ie the stock price goes from 1.55 to maybe 6.75. You just lost 5 times the money you don't have!

I don't think short selling is recommended unless you are very smart.

jmcc

Originally posted by nahdoic
It's called short selling!

The movie Trading Places just sprung to mind - that part where the two old guys find out that the Frozen OJ futures are near worthless.

I guess that the slight recovery due to the underwriters mopping up is this famous 'dead cat bounce'. A very apt analogy. Eircom - Roadkill on the Information Superhighway. Perhaps Comwreck will explain away the collapse in Eircom's shareprice as an economy of scale with Eircom cutting prices due to consumer demand.

You never know, it could all get to such a state that Denis O'Brien could yet try to mount a takeover. Though given the way that the Gombeen Man and his friends have plundered a once healthy company, there is little left to attract a corporate raider in the short term. What would be the effect of the government not bailing out Scanlon and his buddies if Eircom's price went below 0.75c?

Regards...jmcc

SkepticOne

Originally posted by Muck
At about €1 per share the spectre of re-nationalisation would rear its head again, but only if the ESOP agreed to sell first though . I would not waste a penny of taxpayers money in order to have Con Scanlon telling me what to do as a major shareholder. They had their chance to make their money and now it appears that they may just have blown it, the greedy muppets.

I agree however Eircom can continue borrowing to pay dividends. Sure this will further diminish their credit rating, but this is not a problem once the dividends have been paid.

A possible strategy for Eircom.

1. Borrow as much as possible.
2. Pay as much dividends as possible.
3. Invest as little as possible in the network and allow it to decay rapidly.
4. Wait for inevitable government bail out.
5. Retire to Carribean island.

Capt'n Midnight

Wasn't there a clause where O'Reilly has to take back the shares if they fall below a certain limit at the end of the first month - ie. they just undo the whole stock issue ?

sceptre

Originally posted by SkepticOne
A possible strategy for Eircom.

1. Borrow as much as possible.
2. Pay as much dividends as possible.
3. Invest as little as possible in the network and allow it to decay rapidly.
4. Wait for inevitable government bail out.
5. Retire to Carribean island.

So, stating the obvious, we're currently at step 3?

SkepticOne

Originally posted by sceptre
So, stating the obvious, we're currently at step 3?

Step 3 has been operating for some time by the looks of it.

Although I did not express it, I don't see it as strictly sequential. 1, 2 and 3 can be done in parallel and repeated until the desired outcome. Basically it is the continuation of an already successful strategy.

Where I possibly disagree with some people here is in the timescales involved. I would see Eircom succesfully exploiting its monopoly for many years extracting the maximum in dividends and increasing the debt burden before bailing out and leaving only the mug investors (or the government) to pick up the pieces.

Capt'n Midnight

Originally posted by captainpat
Thankfully, the eircom flotation was limited to big corporate investors, who do not subscribe to a "negative-attitude" source such as Boards.ie. Perhaps some bigger fingers will get burned this time, giving some satisfaction to the original owners who lost shirts buying what they had already owned first time around.

One of the reasons the pension funds and insurance companies took these shares is that they MUST spread around their investments and since Eircom is over a certain size they can't ignore it.

Bottom line - joe public will probably get screwed with higher insurance and smaller pension. :mad:

spongebob

Originally posted by Capt'n Midnight
One of the reasons the pension funds and insurance companies took these shares is that they MUST spread around their investments and since Eircom is over a certain size they can't ignore it.

Index trackers generally have to avoid tanking stocks and can (have to I think) wait until the downcycle is over before they buy in. Write to the financial services regulator for clarification of the buying policies guidelines.

M

Paddy20

Call Dubya . He is bound too send in the US military

P. :ninja:

oscarBravo

Originally posted by nahdoic
With short selling you can lose an unlimited amount of money ie the stock price goes from 1.55 to maybe 6.75. You just lost 5 times the money you don't have!

Unless you've placed a stop-loss order to automatically buy once the price reaches a certain level (say 1.58 in this case) which still means you've lost money - but you've limited your losses.

I don't think short selling is recommended unless you are very smart.

"Very careful" is probably a better way of putting it.

The other pitfall of short selling is that there has to be a buyer when you initially sell short - as we've seen in the last week or so, though, there almost always is.

Options, on the other hand - now there's a way to really lose your shirt in the stock market!