Shares in Eircom ended down more than 7% in Dublin today after the company announced this morning that it had agreed to buy the country's third mobile phone company Meteor in a deal worth €420m.
The fall came because the company said a rights issue would fund the acquisition, meaning shareholders will have to buy more shares or risk diluting their stake.
Meteor has just under 10% of Ireland's mobile phone market and has mainly pre-paid rather than contract customers. It was put up for sale earlier this year by its parent, US telecoms giant Western Wireless. Eircom said this morning it expected to be able to double Meteor's share of the market in the next three to four years.
There were initially three bidders: Eircom; a consortium led by Denis O'Brien; and the fixed line operator Smart Telecom. Smart Telecom and the Denis O'Brien withdrew from the race in recent days leaving Eircom on the home run to strike a deal and re-enter the mobile phone market, a market it abandoned with the sale of Eircell to Vodafone in 2001.
Eircom is paying €420m for Meteor, a price some market watchers say is too high given Meteor's relatively humble position in terms of customer numbers. But Eircom will now be the only Irish operator offering fixed line, broadband and mobile phone services.
Consumer groups are likely to say the deal is good for competition and should drive down mobile phone rates, considered expensive relative to other European countries. To fund the purchase, Eircom is to conduct a full rights issue which it hopes will raise all of the money needed to complete the deal.
It hopes to take possession of Meteor by the end of the year subject to shareholder and regulatory approval. The Competition Authority will have to be officially notified of the deal and will then decide whether to approve the buy or launch an investigation.
The Meteor consortium was awarded the third mobile licence in 1998 for £10m (€12.75m), though it did not begin operating until 2001 after a court challenge by losing bidder Orange. Western Wireless took full control of Meteor last year.
The rights issue, details of which will be announced next month, will be at a minimum price of €1.10 per share. Shares in Eircom closed down 14 cent to €1.73 in Dublin.
Eircom has also issued a trading update for the three months to the end of June, saying revenue for the quarter was €399m, while underlying earnings were €150m. This did not include a gain o €45m from the sale of property, which is expected to be received in the current quarter. The company said trading had been in line with expectations. It said it had currently had 150,000 broadband customers.
Meanwhile, chairman Dr Tony O'Reilly told the company's AGM that the third generation mobile market was as yet unproven, but the company would be watching developments with 'extreme vigilance'. He also called for Government funding to help achieve 100% broadband coverage, saying this had been done successfully in Northern Ireland and Scotland.