The Australian investment company made a formal approach to Eircom last week, after months of speculation it would mount a bid, and has now been told its advisers will be given access to key financial data at the company.
A source close to the talks said yesterday: "My understanding is that Eircom has reached a point where it is happy for Babcock to come in and do due diligence. That will be the next stage of the process."
The source said the due diligence was expected to be a formality in the run-up to a full-scale takeover offer to shareholders. "Babcock has been running the slide rule over Eircom for months and there's nothing unexpected to be found in the books."
Eircom revealed it had received the approach from Babcock & Brown on Friday. The Australian investment group has built a 29 per cent stake in Eircom in recent months, but has teamed up with with Esot, the company's employee share-ownership trust to make a formal offer. Together, the groups control 51 per cent of the shares.
Although union members of Esot have yet to approve the deal, Babcock is hopeful a cash offer of €2.20 a share, plus a possible dividend of €0.052 a share, will persuade Eircom's shareholder base to back the deal.
The offer would be at a slight premium to Thursday's closing price of €2.14, but would represent a 48 per cent profit for shareholders who bought their stakes when Eircom was floated on the Irish stock market at €1.55in 2004.
The deal is slightly less favourable than the €2.40-a-share offer Eircom discussed with Swisscom last year. That deal was scuppered when the Swiss government said it would use its controlling stake in the national telecoms operator to block the takeover.
Babcock intends to split Eircom in two if its approach succeeds, creating a retail business, which it could sell off, and a telecoms infrastructure operation. The retail arm would include Meteor, Ireland's third-biggest mobile phone network.
The company first approached Eircom in February, and has raised finance from a consortium of banks including Barclays Capital, Credit Suisse and JP Morgan.
Babcock made a similar offer for parts of BT in 2001, but was rebuffed. While the Irish telecoms market is much smaller than Britain's, the country is attractive to international investors because its economy continues to grow at twice the speed of the average eurozone country.
- More about: