3 Ireland behind rejected Eircom bid, says Bloomberg

bealtine

http://www.businesspost.ie/#!story/Home/News/3+Ireland+behind+rejected+Eircom+bid%2C+says+Bloomberg/id/19410615-5218-4fa3-6306-4acc69196902

Hutchison Whampoa, the owner of the 3 Mobile brand, made a bid of about €2 billion for Eircom, people with knowledge of the matter have told Bloomberg News.

The cash offer by Hutchison’s 3 Ireland unit was rejected by Ireland’s court-appointed examiner because there were too many conditions attached, said two of the people, who declined to be identified because the discussions are private.

Eircom filed for the Irish equivalent of bankruptcy protection on March 30 with €3.8 billion of net debt, the biggest corporate insolvency in the nation’s history. Hutchison is stepping up its investments in Europe, where the Hong Kong company agreed to buy phone carrier Orange Austria this year, and acquired the Northumbrian Water Group in 2011.

“Eircom is undergoing restructuring, so the company may be purchased at a discounted price,” said Lam Ka Kei, who rates Hutchison buy at Redford Asset Management Ltd. in Hong Kong. “For Hutchison, price is the all-important thing in any deal. There are many companies in Europe that face financial issues, so there are opportunities for Hutchison.”

Officials for Eircom and Three Ireland declined to comment late yesterday, as did a spokesman for Eircom’s senior lenders. Eircom’s examiner last month set an April 23 deadline for indicative investment proposals, with a May 7th deadline for final proposals.

Dublin-based Eircom said on April 30th that the examiner, Michael McAteer of Grant Thornton, rejected a conditional non-binding offer for the company. It didn’t name the bidder. McAteer said by phone yesterday that he hasn’t received another offer.

vicM

bealtine wrote: »

http://www.businesspost.ie/#!story/Home/News/3+Ireland+behind+rejected+Eircom+bid%2C+says+Bloomberg/id/19410615-5218-4fa3-6306-4acc69196902

Hutchison Whampoa, the owner of the 3 Mobile brand, made a bid of about €2 billion for Eircom, people with knowledge of the matter have told Bloomberg News.

The cash offer by Hutchison’s 3 Ireland unit was rejected by Ireland’s court-appointed examiner because there were too many conditions attached, said two of the people, who declined to be identified because the discussions are private.

Eircom filed for the Irish equivalent of bankruptcy protection on March 30 with €3.8 billion of net debt, the biggest corporate insolvency in the nation’s history. Hutchison is stepping up its investments in Europe, where the Hong Kong company agreed to buy phone carrier Orange Austria this year, and acquired the Northumbrian Water Group in 2011.

“Eircom is undergoing restructuring, so the company may be purchased at a discounted price,” said Lam Ka Kei, who rates Hutchison buy at Redford Asset Management Ltd. in Hong Kong. “For Hutchison, price is the all-important thing in any deal. There are many companies in Europe that face financial issues, so there are opportunities for Hutchison.”

Officials for Eircom and Three Ireland declined to comment late yesterday, as did a spokesman for Eircom’s senior lenders. Eircom’s examiner last month set an April 23 deadline for indicative investment proposals, with a May 7th deadline for final proposals.

Dublin-based Eircom said on April 30th that the examiner, Michael McAteer of Grant Thornton, rejected a conditional non-binding offer for the company. It didn’t name the bidder. McAteer said by phone yesterday that he hasn’t received another offer.

I'd be very worried for the support staff at eircom/meteor if hutch bought it out.

bealtine

vicM wrote: »

I'd be very worried for the support staff at eircom/meteor if hutch bought it out.

All support would be done from the black hole of Calcutta so yes very little support would be done from Ireland.
Also 3 would then own Meteor/Emobile and that would probably be anti-competitive and would be grounds to appeal the possible sale to the Competition Authority.

Overall not a good thing imho.

vicM

bealtine wrote: »

All support would be done from the black hole of Calcutta so yes very little support would be done from Ireland.
Also 3 would then own Meteor/Emobile and that would probably be anti-competitive and would be grounds to appeal the possible sale to the Competition Authority.

Overall not a good thing imho.

TBH i don't think the anti-competition would apply/be a strong case as they would be only buying the 3rd largest player, also they are keen on getting a buyer as nobody seems overtly interested in eircom and the thing is a cesspool as it is.

croo

bealtine wrote: »

very little support would be done

So no change from now then ... from a customers perspective anyway at least.

watty

Hutchison Whampoa buying it would be worse than a firesale of the plant. No doubt it's only Meteor and the infrastructure that they are interested in.

When does eircom lease back of masts sold to threefold (asset stripping) expire/need renewed?

baords dyslexic

watty wrote: »

Hutchison Whampoa buying it would be worse than a firesale of the plant. No doubt it's only Meteor and the infrastructure that they are interested in.

When does eircom lease back of masts sold to threefold (asset stripping) expire/need renewed?

Can you explain what Eircom have that 3 actually want? I can't see they'd have any interest in maintaining miles of copper, not that Eircom do anything more than the minimum, but someone has to?

bealtine

baords dyslexic wrote: »

Can you explain what Eircom have that 3 actually want? I can't see they'd have any interest in maintaining miles of copper, not that Eircom do anything more than the minimum, but someone has to?

3 wouldn't (probably) be the least bit interested in "miles of copper" and are only interested in eircom's mobile business (meteor and emobile). They'd probably try to sell off the miles of copper probably to the state, of course the state wouldn't be interested so who knows what would happen to it...

smellslikeshoes

I'm not so sure, being the incumbent from day one with a virtual monopoly in a lot of areas has to be worth something.
Hutchison Whampoa have their fingers in a lot more than just mobile phone companies, I see no reason why this couldn't be a bid with the fixed line business in mind.


Yes there will need to be serious investment done but Eircom aren't in too bad a position assuming it can shed a good proportion of the debt.

clohamon

smellslikeshoes wrote: »

I'm not so sure, being the incumbent from day one with a virtual monopoly in a lot of areas has to be worth something.
Hutchison Whampoa have their fingers in a lot more than just mobile phone companies, I see no reason why this couldn't be a bid with the fixed line business in mind.


Yes there will need to be serious investment done but Eircom aren't in too bad a position assuming it can shed a good proportion of the debt.

I think the way Hutchison is owned makes it difficult to say what the reasoning is. The normal rules of business and the market don't really apply.

watty

Unless someone can wipe out 3/4 of Debt or more, it's cheaper to build a new company!

clohamon

The Sunday Independent has learned that Hutchison Whampoa wrote to the examiner last week slamming the sales process and reaffirming that it wished to make a €2bn cash offer for Eircom. Hutchison is believed to have asked for assurances that its bid would be taken seriously. The firm declined to comment.
Sources have indicated that Hutchison Whampoa is prepared to invest up to €1.3bn into ramping up Eircom services and adding some vavavoom to its fibre network. This would be a major boost to the company which has suffered from chronic underinvestment for the last decade.

http://www.independent.ie/business/irish/hutch-dials-up-on-a-revised-2bn-eircom-offer-3101431.html

whitleydonal

baords dyslexic wrote: »

Can you explain what Eircom have that 3 actually want? I can't see they'd have any interest in maintaining miles of copper, not that Eircom do anything more than the minimum, but someone has to?

this comment shows little is known about eircom. eircom owns the network the same as the esb all the other providers simply piggy back no eircom there would be no bt upc or any other provider. The competition is only interested in large urban population areas. eircom is saddled with universal service provision to give service to the likes of the black valley in kerry. the telecommunications service is provided to a small population over a large area. The number of customers do not add up to one exchange area of London. The media indulging in coffin dancing is short sighted unless you live in Dublin Cork or galway. the state got 8 billion for selling the telecoms network given that price any new owner was going to asset strip it. I am amused when people and the media regard the likes of bt and upc as alternative providers they are in a way but they have no network with upc providing a phone service ober voip no monitored alarm then and no service with a power cut but I suppose there is always mobile

watty

UPC do not "piggyback" on Eircom they do not provide DSL. Most of the Piggybacking is DSL which is doomed obsolete technology. Some like Imagine use a lot of Eircom infrastructure for their wireless. Digiweb only uses Eircom for DSL reselling, they have an extensive network infrastructure and VOIP servers and Switches of the their own.

BT disposed of most of the "Eircom piggyback" customers to vodafone. Their remaining business is mostly non-eircom fibre and microwave links.

Eircom sold off most of their mast assets to Threefold and leased back.

Many Eircom ducts can't have the copper pulled out and fibre put in as the wrong kind of pipe was used and the multipair cable covering has "welded" to the pipe. The only use for Eircom fixed infractructure apart from fibre backhaul/back bone is the street cabinet locations and the copper pair from them to the house which can be MINIMUM 20Mbps ADSL2+ or VDSL (current cabinet DSLAMS, which can be bought do both). Most FTTC users would then get 100Mbps on the copper in the house.

The exchanges are dinosaurs, they are not needed for FTTC/FTTK/FTTP/FTTH. Most of the ducting from exchanges to cabinet may be useless.

Exchanged based DSL is obsolete.

The other asset apart from street cabinet (and the copper from it to Premises) and fibre network is Meteor, maybe worth 1 Billion before the current "bust"
The real debts are near 4 Billion.
The line rental is unsustainably high, probably the highest in the world, to stop haemorrhaging to Mobile and UPC it needs to go to about 1/3 and "naked" DSL with QOS managed VOIP from ANY provider needs to retail about €19 including line rental instead of current obscene prices. Eircom have admitted this.

Three are marketing experts. They know next to nothing about running phone systems. Their Irish network is cash constrained on number of masts. The NBS was free money for adding masts they needed to add anyway to meet their licence conditions. It would be a disaster if Three bought Eircom. Where have Hutchinson Whampoa (owner of Three) ever done a major fibre rollout? What Three likely want is the 900 & 1800 access and offshore all support and outsource all engineering. You'd likely see all Eircom offices sold and the existing Three office in Ireland used. We know how well Three have provided Satellite in NBS areas vs what they claimed in Tender, their clack-handed use of 3G repeaters in domestic homes and outrageous claims about their network performance.

Fibre to EVERY premises in Ireland, even Blackwater valley, is a cost half as much or less than Eircom's Debt. Anywhere that can get ESB installed can get fibre cheaper! Fibre can go on poles or in road side ditch (there is even a machine to do it).

I imagine the creditors prefer to own Eircom than take a 1.7 Billion "hair cut" from Three. STT only paid €180M, so Three's €2 Billion offer must surely be for a Debt free Eircom?

Cabaal

bealtine wrote: »

All support would be done from the black hole of Calcutta so yes very little support would be done from Ireland.
Also 3 would then own Meteor/Emobile and that would probably be anti-competitive and would be grounds to appeal the possible sale to the Competition Authority.

Overall not a good thing imho.

Agreed, you'd have Hutchison Whampoa owning Three, Meteor and eMobile....that just seems like an awful awful ideal.

Further to this you'd have three owning the fixed line and DSL wholesale business that the likes of Vodafone and O2 will have to use so it just seems like a very very bad idea.,

bealtine

croo wrote: »

So no change from now then ... from a customers perspective anyway at least.

I've found 2/3rd level support to be ok...as for the script monkeys no comment is required

thedonscork

Cabaal wrote: »

bealtine wrote: »

All support would be done from the black hole of Calcutta so yes very little support would be done from Ireland.
Also 3 would then own Meteor/Emobile and that would probably be anti-competitive and would be grounds to appeal the possible sale to the Competition Authority.

Overall not a good thing imho.

Agreed, you'd have Hutchison Whampoa owning Three, Meteor and eMobile....that just seems like an awful awful ideal.

Further to this you'd have three owning the fixed line and DSL wholesale business that the likes of Vodafone and O2 will have to use so it just seems like a very very bad idea.,

I doubt HWL would be running three different mobile networks after a takeover, and more likely would incorporate all of them over a period of time under the 3 Ireland brand and thus competing with VF and O2's market share, as what is happening in Australia where 3 customers are being taken over to Vodafone as both consolidate business there.

If this did ever happen here it would mean major job losses at eircom/meteor/emobile, which as they stand are a complete shambles anyway. A second bid by 3 Ireland has been rejected and now Eircom will be at the mercy of foreign lenders and creditors with no telecoms interests whatsoever and only interested in debt collection which stands at nearly €4 billion, which is probably a far worse thing for Eircoms future in the long term than if HWL (3 Ireland) had succeeded in a buyout.

watty

Meteor and eMobile are simply different branding of the same network really.

The present proposals are not good. A HWL buyout would be worse in the short term on jobs and as bad or worse in long term for Irish Consumers than the Creditor takeover.

HWL are only interested in selling Mobile phone Contracts and PayYGo. Currently they don't really make any profit in Ireland as they have too high a proportion of Data customers. Voice subsidizes current Data pricing on Mobile. SMS is real money spinner as it costs nearly nothing. Data costs 100x to 200x more for the operator for the same €20 price approx data only package vs voice only package. Three here need to dramatically change their customer profile or they are "toast". Only HWL is keeping them going. They had a real problem rolling out the last of 3G masts to meet licence till NBS gifted it.
On Satellite for NBS tender Three had quoted less than non-Hylas prices would cost. Many people with Three NBS Satellite are NOT on proper spec of package in Tender to NBS scheme. They are on ordinary retail package with much worse contention and cap restrictions (hourly, daily, weekly and not just the monthly cap). Three must have lost a lot on the NBS satellite provisions. That's why they fooled around with the pointless (an should be illegal the way Three are using them) "repeater" solutions intended for Metal warehouses, tunnels, shopping malls and underground car parks, not for Domestic houses with poor signal.

In Ireland Three have been misleading with NBS advertising, inept with Satellite pricing and installs and with 3G repeaters. Certainly HWL/Three running Eircom would be 99% job losses due to Mumbai support and contracting out and inept engineering driven by Telecom Vendors Marketing Depts. Because that is how the Three 3G network here works.

On Three's response to complains to ASAI the data Three used to "prove" they are supplying Broadband was not from representative 3G mobile but from Fixed Wireless systems.

thedonscork

We all know that 3 Ireland have cut costs and taken short cuts and are not making a profit at the moment mainly due to the infancy of their network, rollout of 3G, a costly roaming agreement on Vodafones GPRS and EDGE networks, as well as their current low market share of 7%, but this is growing at 20% year on year anyway while all other networks are losing customers (Tesco aside) and a purchase of meteor/emobile would see 3 Ireland become a major player rivaling the big two.

3 UK also made no profit while introducing and rolling out their network but are now making a profit for the last 2 years in a row as they make huge inroads in terms of growth and market share fast approaching 9 million customers in the UK now. 3 Sweden and 3 Austria are also major players in respective countries after their purchase of Orange in Austria.

I don't agree that HWL are not interested in the fixed line business either. They have many interests in other types of business worldwide, and according to media reports the HWL bid included an additional investment of €1.3 billion in Eircom and its infrastructure.

However if this takeover did happen yes there would be massive job losses, but Eircom and it's companies are already an overbloated dead duck as it stands.

clohamon

thedonscork wrote: »

3 UK also made no profit while introducing and rolling out their network but are now making a profit for the last 2 years in a row as they make huge inroads in terms of growth and market share fast approaching 9 million customers in the UK now. 3 Sweden and 3 Austria are also major players in respective countries after their purchase of Orange in Austria.

AFAIK Hutchison 3G UK Limited made operating losses of £345M and £326M in 2010 and 2009. It also has interest-free loans in excess of £10Bn from its parent companies.

thedonscork

clohamon wrote: »

AFAIK Hutchison 3G UK Limited made operating losses of £345M and £326M in 2010 and 2009. It also has interest-free loans in excess of £10Bn from its parent companies.

The following is taken from a report from FierceWireless Europe from March of this year:

"3UK's unlimited data plans continue to attract attention, with the operator boosting its subscriber numbers by 18 per cent in 2011 to 8.2 million. The company also revealed revenues were up 14 per cent to £1.787 billion and the operator recorded its second profitable year since starting operations in 2003 with an EBITDA of £191 million, up 16 per cent on 2010."

The full report is here http://www.fiercewireless.com/europe/story/3uks-all-you-can-eat-data-plans-driving-growth/2012-03-30

The fact they may have loans from their parent company HWL wouldnt affect their ability to operate successfully when the company is growing strongly. Remember O2 owners Telefonica have debts of €57 billion and need to raise €10 billion in cashflow to avoid a credit rating downgrade. While Eircom have debts approaching €4 billion in Ireland alone and are losing money, not growing and thus find themselves in this mess.

clohamon

thedonscork wrote: »

The following is taken from a report from FierceWireless Europe from March of this year:

"3UK's unlimited data plans continue to attract attention, with the operator boosting its subscriber numbers by 18 per cent in 2011 to 8.2 million. The company also revealed revenues were up 14 per cent to £1.787 billion and the operator recorded its second profitable year since starting operations in 2003 with an EBITDA of £191 million, up 16 per cent on 2010."

The full report is here http://www.fiercewireless.com/europe/story/3uks-all-you-can-eat-data-plans-driving-growth/2012-03-30

The fact they may have loans from their parent company HWL wouldnt affect their ability to operate successfully when the company is growing strongly. Remember O2 owners Telefonica have debts of €57 billion and need to raise €10 billion in cashflow to avoid a credit rating downgrade. While Eircom have debts approaching €4 billion in Ireland alone and are losing money, not growing and thus find themselves in this mess.

I think we're talking about different things. Operating figures make provision for things like interest from interest-bearing loans, the pay-down of its licence, depreciation and exceptional items. EBITDA doesn't. You can take your pick.

The accounts you quote for 2011 don't seem to have landed in the companies office so that we cannot see what the operating figures for 2011 were, just yet.


AS for the loans from parent companies, the point is that they're interest-free (according to their accounts). You could estimate what the additional interest cost of a £10Bn commercial loan would be and add it on to the costs. That might give a truer picture of the return/loss that HWL is making on 3 in the UK.

Which is not to say that they won't eventually make an operating profit. But its doubtful they could ever get market share sufficient to generate a return on the overall investment.

watty

They have too high a proportion of Data customers. I think almost all their growth is data, which at current prices and packages can't make them profit. On voice they are also competing with MVNOs (varying from having lots of infrastructure, i.e. Tesco, to very little to none). There may be four or five other "Mobile" voice Retailers.

Eircom DSL and fixed line is shrinking, I don't think their Mobile has such a problem. Mobile is basically at saturation which is why most of Three's growth is unprofitable data.

Quoting Three UK isn't applicable for Ireland, though I think in UK 75% of Three's traffic is Data, not Voice. I expect Data is a higher proportion here.

thedonscork

About 55% of Three customers in Ireland are Data and 45% voice from comreg results last year. I can't imagine that has changed much since with vigorous advertising campaigns for both.

Meteor/emobiles market share percentage is reducing by 0.5% year on year and stands currently at around 19.5% of the mobile market. The biggest market share loss continues with O2 reducing its market share percentage by 3% year on year and is currently around 29%.

Only Three and Tesco mobile are growing with a 1.1% rise in market share year on year for Three and 0.5% rise year on year for Tesco. There are no indications that this growth will change.

watty

A data customer uses about 100x to 300x the network resource for same price of package.

With that ratio and many Three voice customers using data, they can't make money on current pricing. That also would put over 95% of traffic volume being data.

Tesco use O2 masts.
I think An Post uses O2 also, not sure.

Three and Tesco growth can ONLY be from other Mobile operators at this stage and unless Three continues to be aggressive on price (i.e. not actually really make money) they can't continue the growth as the only differentiation for Three is price.

Three also saw a significant number of customers due to "winning" the NBS, for which they have not supplied a single broadband connection. Three has actually Zero broadband customers in Ireland according to valid international metrics of what Broadband is.