STT to buy Eircom for €130m

bealtine

watty wrote: »

IMO ESOT /

Hopefully STT will be a different & better situation.

Only after they have toasted all the current bond/shareholders.

dr1nky

This makes for some interesting reading, composed from somebody who 'occasionally advises in relation to the Irish telcomms sector':

http://www.eire.com/2010/the-crisis-at-eircom/

Doesn't look too hopeful for a distribution next month! OR in the near future, according to the opinion of this guy... ahh well!

dr1nky

watty

Or ever.

I think the money for doing nothing except existing party of ESOP etc is over. As it should be.

Why on earth should people expect dividends from a company that got nearly 4 Billion into Debt by payouts? (virtually any network investment was out of revenue).

The Asset stripping has to stop. The Debt was artificial and nothing to do with actual investment in physical assets, but simply to buy shares, so as to be able to legally asset strip.

thepenpusher

dr1nky wrote: »

Doesn't look too hopeful for a distribution next month! OR in the near future, according to the opinion of this guy... ahh well!

dr1nky

Oh Dear.............not the news I was hoping for at all. A difficult year is about to get even moreso.

dr1nky

watty wrote: »

Why on earth should people expect dividends from a company that got nearly 4 Billion into Debt by payouts? (virtually any network investment was out of revenue).

....because I like free money!

johnny 97

Watty you dont have a clue what you are talking about. How long have you worked in eircom?. You seem to have no idea what the staff did or how much we gave up to set up the esop. Get informed before you post stupid posts.

Sponge Bob

Dr1nky is my kind of parasite...your round son

watty

johnny 97 wrote: »

Watty you dont have a clue what you are talking about. How long have you worked in eircom?. You seem to have no idea what the staff did or how much we gave up to set up the esop. Get informed before you post stupid posts.

People that worked in Eircom got paid for working. In many cases more for less work, or less efficiently than private industry. Anything that any eircom worker gave up to set up esop, they should not have had in the first instance.

The Workers should have got no special treatment or consideration whatsoever when eircom was privatised. They got paid their wages and better severance and pensions than most private industry.

Esop should not have got a cent. It was an accomplice of the other asset strippers that stripped billions out of an infrastructure the Irish Taxpayer paid for.

trekkypj

watty wrote: »

People that worked in Eircom got paid for working. In many cases more for less work, or less efficiently than private industry. Anything that any eircom worker gave up to set up esop, they should not have had in the first instance.

The Workers should have got no special treatment or consideration whatsoever when eircom was privatised. They got paid their wages and better severance and pensions than most private industry.

Esop should not have got a cent. It was an accomplice of the other asset strippers that stripped billions out of an infrastructure the Irish Taxpayer paid for.

Hear hear.

Anyone with even a rudimentary grasp of company accounts can tell you that the company at the time of the sale to STT was one short step from imploding. It sold for the 'bargain' price it did for a reason.

A company cannot sustain losses indefinitely. Eircom was all but out of cash to finance its day to day operations. If Babcock & Brown hadn't sold the company would have folded.

And the fact remains that ESOT contributed to this situation by chasing payouts instead of insisting that company money be used for infrastructural work and the development of profitable business, which would require major reinvestment of earnings.

Quite honestly, the fact that ESOT is a shareholder in Eircom is part and parcel of the problem. It should never have been done. It's killing the company.

And if Eircom does go belly-up then the members of ESOT are going to get screwed.

Johnny 97, you say we are uninformed. We could say the same of you if you can't see the mess that the finances of Eircom have been in. But you know what, I have no beef with ESOT members - just don't expect much sympathy if you lose out in the event of the company folding.

If you guys can't get answers from your own trustees, then, as Shakespeare says, something is rotten in the state of Denmark.

I've enclosed a copy of the latest eircom accounts to hand. Says it all really.

johnny 97

watty wrote: »

People that worked in Eircom got paid for working. In many cases more for less work, or less efficiently than private industry. Anything that any eircom worker gave up to set up esop, they should not have had in the first instance.

The Workers should have got no special treatment or consideration whatsoever when eircom was privatised. They got paid their wages and better severance and pensions than most private industry.

Esop should not have got a cent. It was an accomplice of the other asset strippers that stripped billions out of an infrastructure the Irish Taxpayer paid for.

Still talking rubbish watty, what did i tell you about getting yourself informed. The debate going on about esop lack of information etc has nothing to do with the sort of dribble and nonsence you are posting

watty

This is a forum about Broadband availability. Not Esop victim support.

You don't like what I'm saying, but it's true.

The reason esop isn't communicating is because when they do the members won't like it. There will be three options:
1) Do nothing, get no more money probably ever, and shares will be worth hardly anything.
2) Put in lots of money per share, to match what STT invest, which will be investement into the Network, and the share value will be maintained. There will be no more payouts for maybe 10 years.
3) Some option between those two.

I'm quite well informed and have my eyes open and don't have my head in the sand.

trekkypj

johnny 97 wrote: »

Still talking rubbish watty, what did i tell you about getting yourself informed. The debate going on about esop lack of information etc has nothing to do with the sort of dribble and nonsence you are posting

No need to go into hysterics mate. We're not your enemy.

We're just saying from a fairly objective viewpoint that you guys have major issues to face up to. ESOP are leading y'all down a garden path and there is a huge risk that you won't get any more money in the foreseeable future. Instead of denying this and accusing us of ignorance, consider why we believe this to be true.

Eircom's changes of ownership saw money roll in from ESOT. Like it or not, you guys over a long period did far better out of the company than most employees in the private sector. Even as the company's finances became unstable the payments kept being made to ESOT members. You didn't question where the money came from, but took it and ran.

Too much was paid out when it should have been invested in fibre roll-out (and DSL roll-out before that). The company is in a financial hole and if it can't pay off its corporate debt it will go under unless serious money is raised by new owners.

If you look at the balance sheet and cash flow statement I posted, it shows that as of the end of 2009, revenue is down, cash flow is down, the company is losing a load of money. Unless STT invested something like two to three billion into the company I don't see how things could've improve.

I predict that within 12-18 months one or more of the following will happen:

(a) STT will announce plans to float on the stock market and seek additional investment, or it will increase its own ownership hugely by putting €2-3 bn into the company (the least likely option);
(b) STT will decide it can't make anything of the company and put it up for sale. Again. (more likely);
(c) STT will in the coming months declare the company as being in danger of becoming insolvent, and will attempt to re-negotiate the debt at cents on the euro while holding the threat of liquidation over the head of debt-holders. (most likely);
(d) Eircom will become insolvent and after flirting with some of the above will declare bankruptcy . Eircom will be wound up, and so cease to exist, its assets will be bought up by UPC, Vodafone, BT and other providers, and anyone owed money will get little or nothing. Shareholders will be wiped out (the Portsmouth FC doomsday scenario).

In any one of the above scenarios, ESOT will lose percentage ownership of the company. Their shareholding in Eircom will be diluted (or eliminated altogether), resulting in loss of control AND a catastrophic loss on investment.

Like it or not, the future of broadband roll-out, your continued payments from the ESOT and the financial situation at eircom are intertwined. And the fact that your own trustees are acting like shady Zurich gnomes and are not informing you of how matters stand is something everyone who has a stake in the future of eircom should be fearful about.

bealtine

trekkypj wrote: »

(c) STT will in the coming months declare the company as being in danger of becoming insolvent, and will attempt to re-negotiate the debt at cents on the euro while holding the threat of liquidation over the head of debt-holders. (most likely);

This seems to be the most likely outcome given STT's form already.

thepenpusher

Practically everything that Watty and Trekky have to say is true. It is a hard pill to swallow but true nonetheless.

However, as the majority of eircom workers/ex-eircom workers held civil service status we were not 'ordinary' workers watty. Whether or not you like this is irrelevant and doesn't make it any less a fact. And yes, we were treated differently because of this.

The esop was sold to the workers, it didn't come free of charge.

All I want is information from source. I realise this will probably never be forthcoming but I want it all the same and will keep asking. I think I am morally entitled to some answers.

watty

You are intitled to info and it's a disgrace the way it's managed.

I agree the civil service issue is a separate issue. Nothing to do with IoffL or Esop now.
IMO
1) P&T and Teachers etc should never have been Civil Service.
2) The Civil service should have been reformed in 1922, 1937, 1949 or whenever. Why should one section of workers have such rights that they can take nearly indefinite leave without having to resign and practically takes a ministerial order or act to sack or redundant them?
3) Sick Leave! Essentially part is regarded as extra holiday entitlement.
4) Pensions.

I don't blame the workers I blame successive Governments. Who do they take advice on Civil Service from? Civil Service. The Mr Humphries.

I agree these are all separate issues and the actual "members" of esop should be told the truth by their trusties/Management.

theman

Following is what CWU sent to its members



BACKGROUND – ESOP STRATEGIC POSITIONING
The ESOP’s distribution programme has delivered over €770 million through 12 distributions to beneficiaries since the first distribution in May 2002. This represents a substantial return on the original investment of c.€240 million (€114 loan and €127 million – capital injection in return pension contribution).
In ESOP EXTRA 20 (the distribution in June 2009) the Trustee made a reduced distribution and flagged that it was doing so to preserve its options in relation to the future of the company given:
· the uncertainty that existed around future ownership
· the possible requirement to inject new equity,
· preventing dilution of the ESOT’s stake, and
· maintaining a strategic stake at a critical point in the company’s history.
The broad trust of this position was echoed in GS Circular 19/09
Board Policy
The ESOP’s stated policy position as enunciated in ESOP Extra 8 and repeated since, is
“ to encourage and facilitate the acquisition and holding of shares”
“to work to maximise the benefits to Participants including the creation and distribution of monetary value to Participants and maintaining shareholder influence”
“The eircom ESOP Trustee intends to continue with its policy of regularly distributing assets from the ESOP to participants on a managed and phased basis”
CONTEXT - FUTURE OF EIRCOM
It is useful to briefly recall the context in which the STT transaction was supported by the ESOP board and also subsequently endorsed by the Union.
There was general acceptance that a continuing relationship with Babcock was not in the interest of the company, its staff, its customers or indeed Ireland Inc. A number of factors influenced the decision to support the STT proposals, including:
· The desire to avoid merely swapping Babcock for different but similarly motivated Private Equity investors;
· STT had a track record as an investor with longer term investment horizons;
· Debt restructuring was not a pre-requisite to their investment;
· There were no preconditions in respect of dealing with the Pension issue;
· STT were not adverse to investing in the business in the right circumstances;
· Their recognition of the need to build new relationships with Government and the Regulator, and to obtain a new regulatory context for future investment.
· Maintaining ESOT’s strategic role and influence in eircom.

INVESTMENT & DISTRIBUTION
Implicit in the ESOT’s support for the STT acquisition, and the preservation of the ESOT’s position as a 35% shareholder, was the realisation that a future capital injection event would require the ESOT to re-invest in eircom in order to avoid significant dilution and the consequent loss of influence that could arise.
STT clearly have access to capital, the question for them will be whether to invest, and if so what purpose the cash will be used for i.e. pay down debt, restructure the debt, provide capital for investment. There is also the issue of quantum and the timetable for any cash injection – which may be spread over an extended period rather than being invested all at once.
Realistically, the ESOT does not have the capacity to raise borrowings to fund any meaningful capital injection. Cash-flows would be insufficient to repay borrowings. Moreover, the security required to underwrite the significant borrowings that would be necessary, would in all likelihood prevent any distributions being made.
Borrowing therefore is not a viable solution to the investment issue and therefore the most practical solution is a redemption of Preference shares to fund any future capital injection by ESOT.

ESOP APPROACH
As outlined above, the ESOP board’s objective has been to find an investor for eircom that was prepared to invest in the business and to take a longer view of its investment.
By definition this creates a challenge for the ESOT in deciding whether to follow its investment or not. It is an issue that cannot be avoided but it is unclear what STT propose to do and there is uncertainty around the level of any investment that may be required and the timing of this.
The consequences for ESOP of not following its investment are clear:
· The ESOP could be significantly and irrevocably diluted;
· Loss of strategic influence and board representation at a critical juncture;
· ESOP foregoes opportunity to benefit from upside from any fresh investment:
· Little value to be extracted from the existing ordinary shareholding.
However, in the right circumstances, indications are there is potential to achieve upside from fresh investment, while preserving influence and avoiding significant dilution.
So there are big decisions to be made, but until such time as the eircom business plan has been agreed by the eircom board and STT makes its mind up on the level of ‘new money’ it wishes to put in, we will not know what is required of us.
None of this is a foregone conclusion, but nevertheless, were ESOT to decide not to invest it would be viewed as a vote on no confidence in eircom. These are not easy decisions and the ramifications are clear. For the present we must preserve our ability to invest should that be the decision in due course. That means holding on to the resources necessary until the road forward is clear and we know what is required of us.
The ESOP would equally like to be able to continue to make distributions but it must try to strike a balance between the competing interests it faces.
It is worth bearing in mind that a distribution is an irrevocable act, it depletes the ESOTs resources, and if this were to happen to any significant extent, its capacity to invest, and by extension, to avoid dilution could be seriously jeopardised. In such a scenario, the ESOT may find that it stands largely defenceless should STT subsequently decide to make a large cash injection, as it would not have sufficient realisable assets to avoid a major dilution event.
The timing of a Distribution is also a factor, as earlier distributions will inevitably lead to pressure for further distributions that may not be achievable or ultimately in the best interests of beneficiaries.


APPENDIX

· The above chart show the effect on ESOT’s stake in eircom arising from a Capital Injection of €300M, €450M and €600M
· The horizontal axis shows the ESOP contributing Zero, €30M, €50M, €70M or €90M.
· The Blue line plots the ESOT stake if it contributed at each of the amounts shown on the horizontal axis if the capital injection totalled €300M.
· The Red line plots the outcome on the basis of a capital injection of €450M, while the Dark Green line shows the effect if the capital is €600M.
· So, for example, assuming a capital injection of €300M is made and lets assume the ESOT puts in €30M, then the effect would be to reduce the ESOT’s stake in eircom to 15%. This would result in the loss of 1 ESOP nominated director
· If the capital injection were €600m the ESOT would need to inject c.€50M to preserve a minimum of 1 director, and keep its stake above the 10% threshold.
ESOT ASSETS
The ESOT currently holds a 35% stake in eircom which at the STT offer price, would value the stake at c.€26 million. The shares are currently illiquid and likely to remain so for some period.
The ESOT’s other assets are c.€99 million in Preference shares and c.€54 million in Vodafone shares.
The ESOT has liquid assets which would equate, if fully distributed, to €15k per beneficiary on the max allocations.
The Vodafone shares are the ESOT’s main income source and without these the ESOT would not have sufficient income to meet its expenses which include payments to representatives of deceased beneficiaries.

watty

The original "investment" was not Investment at all, but asset stripping via leveraged buyout.

Basically now ESOP/ESOT either really invests or the shares are worth a lot less. That's what the above says in plain English.

jd

Or the esot could wind itself up, and distribute
"€99 million in Preference shares and c.€54 million in Vodafone shares." and sell off the ordinary shares for whatever they are worth?
That would be about 16k for an esot member with a full allocation

watty

theman wrote: »

Implicit in the ESOT’s support for the STT acquisition, and the preservation of the ESOT’s position as a 35% shareholder, was the realisation that a future capital injection event would require the ESOT to re-invest in eircom in order to avoid significant dilution and the consequent loss of influence that could arise.

.... and therefore the most practical solution is a redemption of Preference shares to fund any future capital injection by ESOT.


.... nevertheless, were ESOT to decide not to invest it would be viewed as a vote on no confidence in eircom.

It is worth bearing in mind that a distribution is an irrevocable act, it depletes the ESOTs resources, and if this were to happen to any significant extent, its capacity to invest, and by extension, to avoid dilution could be seriously jeopardised. In such a scenario, the ESOT may find that it stands largely defenceless should STT subsequently decide to make a large cash injection, as it would not have sufficient realisable assets to avoid a major dilution event.


ESOT ASSETS
The ESOT currently holds a 35% stake in eircom which at the STT offer price, would value the stake at c.€26 million.

The shares are currently illiquid and likely to remain so for some period.*


The ESOT’s other assets are c.€99 million in Preference shares and c.€54 million in Vodafone shares**.

The ESOT has liquid assets which would equate, if fully distributed, to €15k per beneficiary on the max allocations.

The Vodafone shares are the ESOT’s main income source and without these the ESOT would not have sufficient income to meet its expenses which include payments to representatives of deceased beneficiaries.

*They can't sell the eircom shares. If they don't match STT investment percentage wise, the shares are worth less. If they don't invest the shares are worthless. The stake at c.€26 million. is book-keeping fiction.

**They can't give away the €54M vodafone share value to members as that money is needed to pay on going liabilities. (Received from the disastrous asset stripping of eircell Mobile)

There will be no more distribution to members. Current income is needed for current liabilities and where would they find money to invest? They can't borrow it.

It's finished. The eircom holding will be diluted to < 2% (or about 15% if they invest €90M) and the other holdings will finance the ongoing liabilities, operational expenses and committed payments to representatives of deceased beneficiaries.

ESOP/ESOT went along with the serial asset stripping of a National Infrastructure to tune of over 5Billion maybe (more than the actual Debt of nearly 4 Billion incurred) and got maybe over €800M themselves.

What ESOP/ESOT got would pay for HALF of 100Mbps fibre to home for everyone. Half of what almost any of the other carpet baggers ran off with simply for loading eircom with Debt and mismanaging it would pay for the other half of rollout.

STT know what they are doing. Letting people run off with more money is not in the plans. They'll make sure money they put in is real investment in the Network and that bond holders and shareholders get as little value as possible.

jd

My understanding is that the vodafone dividends are used to fund the operating expenses of the esop. If the esot is wound up the vodafone shares can be distributed. There are also the preference shares that can be distributed. In other words with the preference shares + vodafone shares = 15k to full members of esot. The 35% of eircom is worth shag all.


Above aside, STT have a history (see global crossing) of making bond holders take a bath. I'm not sure if the esot redeemed their preference shares (ie are now sitting on cash 100km euro or still hold preference shares)
If esot are still holding preference shares rather than cash where would these shares stand compared to the bond holders in the event of STT precipitating a technical default?

One other thing. Eircom may be somewhat exposed in their choice of chairman.
"Ned Sullivan was appointed as an independent director and chairman of the Board of eircom on 30 October 2008. He is currently Chairman of Greencore Group plc and of McInerney Holdings plc. He is the former Group Managing Director of Glanbia plc and has held various senior management positions in Grand Metropolitan plc in London and Dublin."

Missing from his current resume on the eircom site is his position as memebr of the audit committee on anglo irish
http://www.angloirishbank.co.im/About_Us/Libraries/Anglo_Irish_General_Library/Annual_Report_and_Accounts_2005.pdf

Sponge Bob

jd wrote: »

Above aside, STT have a history (see global crossing) of making bond holders take a bath.

The original takeover proposal that STT ( and Hutchison who own 3 Ireland) jointly came up with was for the Global Crossing bondholders to write off 84% and for the shareholders to write off 100%.

Can't remember the final deal save that Hutchison were out of the loop on US national security grounds and STT got the lot.

Missing from his current resume on the eircom site is his position as member of the audit committee on anglo irish
http://www.angloirishbank.co.im/About_Us/Libraries/Anglo_Irish_General_Library/Annual_Report_and_Accounts_2005.pdf

Lovely

The greatest corporate failure in Irish history was directly supervised by Ned. He was a board member from 2001 to early 2009 after it was nationalised. I am not sure how long he spent on the audit committeee but he was on the Anglo Irish "Risk and Compliance" committee in 2007 to advise the board on the "key risks" .

But then again eircom are about to fail too, as now structured, so there is a sort of symmetry here

jd

..

thepenpusher

theman wrote: »

Following is what CWU sent to its members

Can you tell me when this was sent to members please? Thanks.

thepenpusher

jd wrote: »

My understanding is that the vodafone dividends are used to fund the operating expenses of the esop. If the esot is wound up the vodafone shares can be distributed. There are also the preference shares that can be distributed. In other words with the preference shares + vodafone shares = 15k to full members of esot. The 35% of eircom is worth shag all.



And worth even less to ex-eircom members of the ESOP. Looks like we're being royally screwed.

My understanding was that the ESOP was to be run solely for the benefit of members. Am I right in thinking that the majority of members are ex-eircom? I'm sure someone can put me straight on this.

bealtine

My understanding was that the ESOP was to be run solely for the benefit of members.

The naivety:) Do you honestly believe that?

watty

My understanding is that it existed also for the Benefit of the Unions, Specific Officials and also to make life simpler for potential asset strippers.

thepenpusher

Obviously subtle irony is lost on some of you. I have never found it necessary to criticise anyone personally in any of these forums and I would appreciate the same courtesy in return.

thepenpusher

watty wrote: »

My understanding is that it existed also for the Benefit of the Unions, Specific Officials and also to make life simpler for potential asset strippers.

Yes watty, this is indeed how it has turned out.

trekkypj

Wow that CWU document that was posted... it does not paint a pretty picture at all.

*sigh*

If it's one thing I hate it's the looting of companies, legally in this manner. It really cheeses me off. Because customers suffer, and so do the unfortunates who work there when the whole unstable ediface crumbles. Meanwhile the people who mucked up the company have their wallets fattened.

*edit* Just so it's clear, I'm not talking about ESOT members, but the representatives of Babcock & Brown and Valentia/Valencia who looted the company. I don't blame people for taking the money ESOT distributed, really. I just think it was a bad idea to pay it out the way it was done.

I.P.O.E.U.

I don't remember receiving above missive.What with pension levies ,carbon taxes and other costs we we pensioners are left to batten down the hatches.WE EARN TOO MUCH FOR A MEDICAL OR DOCTOR'S CARD .By using a mobile phone all the time plus a "3" broadband plugin and getting rid of the T.V. ,I'm saving about 56 euro/month on phone bills(landline eircom ) and 160 euro /year T.V.licence which alleviates the levy loss and helps with increased fuel costs.Of course "Eircom are loosing 150-160 euro / 2 month period but blood from a turnip is hard to extract I wonder how many cutbacks Mr Scanlon and his cronies have implemented in their lifestyles due to the situation we find ourselves in through no fault of our own.As "Watty" constantly states that this or that should not have happened : the reality is that it did and we are all affected by it.The Titanic should not have sunk,Hitler should not have been allowed to get as far as he did and we should have a perfect economy and many other "shoulds" can be opined but we have to deal with what happened,was signed for and the reality of what is here and now .