I move:
"That pursuant to section 8(2) of the Telecommunications (Miscellaneous Provisions) Act,1996, as amended by section 2 of the Postal and Telecommunications Services (Amendment) Act, 1999, Dáil Éireann approves the general principles of: (a) the Telecom Éireann Employee Share Ownership Plan, to be established pursuant to section 8(3(b) of the Telecommunications (Miscellaneous Provisions) Act, 1996; and (b) the Initial Public Offering of Shares in Telecom Éireann, to be carried out pursuant to sections 8 and 9 of the Telecommunications (Miscellaneous Provisions) Act, 1996, as amended by sections 2 and 9 of the Postal and Telecommunications Services (Amendment) Act, 1999; copies of which principles were laid before Dáil Éireann on 21 April 1999 and on 7 May 1999 respectively.
This motion seeks the approval of the House for the general principles pertaining to two separate disposals of State owned shares in Telecom Éireann, namely, the sale and transfer of a 14.9 per cent shareholding under the employee share ownership plan and the sale of a further tranche of shares in the forthcoming initial public offering of the company.
I am pleased to tell the House that Telecom Éireann will announce cuts of £145 million in telephone bills this afternoon. These cuts involve significant reductions in call costs to the US and the UK and is part of the continuing downward pressure on prices in the telecommunications sector which has seen business and the consumer winning out. Further cuts will also be announced.
The broad terms of the ESOP have been common knowledge for the past year since agreement was reached with the union coalition representing employees in the company in March 1998. As the House is aware, the Telecom Éireann ESOP provides that employees will pay £190 million for 9.9 per cent of the company with an additional 5 per cent acquired in return for company transformation. I note many right wing economic commentators say 14.9 per cent of shares in the company are being given to employees of Telecom Éireann. It appears to be left to the union and me to explain that the employees will pay for the shares. It is necessary to say this very clearly because one cannot issue a correction every time an incorrect comment is made.
The employees are to receive a shareholding of 14.9 per cent in the company which will be transferred to an employee share ownership trust. A total of 9.9 per cent of the State's shares in the company will be transferred to the ESOT from the outset on payment to the Exchequer of the agreed price. The sale of the 9.9 per cent shareholding is a commercial transaction and the agreed price was based on a valuation of the company which was carried out by expert financial consultants engaged by my Department at the time. An additional 5 per cent will be transferred to the employees in stages on the basis of progress in achieving efficiencies in work practices and cost savings under the Telecom Éireann partnership agreed in 1997 between management and unions in the company.
The price of the 9.9 per cent will be £190 million payable to the Exchequer by the ESOT. The ESOT will source its funds in the following manner. The company has agreed to make a contribution of £100 million to the ESOT which the company is satisfied represents fair value for employees agreeing to contribute to their pension scheme and waiving their right to certain bonus payments – a concession by employees which is rarely referred to by commentators. As part of their contribution to the agreement, the employees are paying 5.3 per cent of salary as an employee contribution to the pension fund. Heretofore, the company made the full contribution. A total of £60 million will be raised by the ESOT by way of commercial loan. This loan will be secured against shares held by the ESOT and will be repaid out of dividends received by the ESOT on its shareholding. The ESOT will make a final payment of £30 million, conditional on a company valuation of at least £2 billion, on a basis which will be without recourse to the company or the State and will take place one year after the date of the initial public offering.
Final payment will be secured against an appropriate percentage of the shares held by the ESOT and the ESOT loan will provide flexibility to increase its borrowings to facilitate the making of the final payment. The ESOT will receive dividends on its shareholding from the closing of the ESOP transaction.
The phasing of the transfer of the 5 per cent stake is linked to progress in implementing the Telecom Éireann partnership which was agreed between the company and its unions in 1997. The broad terms of the ESOP which were agreed in March of last year provided that one third of the 5 per cent stage would be transferred to the ESOT from the outset, with the remaining two thirds being transferred in March and December of this year, subject to verification by the company's chief executive that transformation continues to be implemented satisfactorily. At the time, it was envisaged that the ESOP transaction would be concluded by the end of 1998.
However, as the House knows, the Postal and Telecommunications Services (Amendment) Act, 1999, which contains a technical provision to facilitate the ESOP, was signed into law only last month. In addition, the definitive legal documentation to give effect to the ESOP took longer to finalise than had been expected by all the parties involved. We have, therefore, passed the date by which the second tranche of the 5 per cent stage was scheduled to be transferred to the ESOT and on the basis of progress to date in implementing the Telecom Éireann partnership, two thirds of the 5 per cent shareholding will be transferred to the ESOT at the closing of the ESOP transaction.
The ESOT is also entitled to nominate a director for appointment to the board of Telecom Éireann. The unions in Telecom Éireann, through the ESOT, will be nominating Deputy Spring, for appointment on the board of the company as ESOP director. I have already said, here and in the Seanad, how pleased I am with the unions' choice in this regard. Deputy Spring is a highly competent and professional person, and I have no doubt he will be seen as such by the investment community. As I said on previous occasions, this ESOP is an important and innovative agreement, fully in line with the spirit of Partnership 2000 and in accordance with the Government's An Action Programme for the Millennium.
Last July, the unions in Telecom Éireann conducted ballots of their members on the agreed principles of the ESOP, all of which resulted in overwhelming votes in favour of the agreement. Since then, detailed work on the drafting of the definitive legal documentation to give effect to the ESOP has been ongoing and these are now in place, ready for signing by the parties. The trust deed incorporating the rules and conditions governing ESOP has also been finalised and approved by the Revenue Commissioners.
The ESOT has also negotiated a loan agreement to part finance the purchase of the 9.9 per cent shareholding. This is a commercial loan and is without recourse to the company or the State. The ultimate objective of the ESOP is to transform Telecom Éireann into a world class telecommunications business through cost reduction, more flexible working arrangements and improved delivery of service to customers.
Before I refer to the wider context in which the Telecom Éireann ESOP and the forthcoming initial public offering are being undertaken, I wish to address the general principles of the IPO. Deputies will recall that during the debate in this House on the Postal and Telecommunications Services (Amendment) Bill I accepted an amendment which gives rise to the motion now before the House and which provided for the approval of Dáil Éireann to be obtained before the State disposes of shares in Telecom Éireann. The text of that amendment was subject to some discussion at the time and I made it clear that for practical and legal reasons and for reasons of commercial confidentiality I would not, and cannot, discuss the terms, that is the specific details, of the IPO. I do not know them yet. I trust Deputies will appreciate that this remains the position. Accordingly, as required by the Act, I seek approval of the House for the "general principles" of the sale.
As a practical matter in flotations of this nature, many of the details involved will not be decided upon until much closer to the IPO date and some issues, such as the definitive offer price and the ultimate split between the retail and institutional offerings, will not be decided upon until immediately prior to the flotation on the various stock exchanges. I have, however, made clear in the general principles which were laid before the House that a minimum of 20 per cent of the shares of Telecom Éireann will be sold in the IPO. Clearly more than 20 per cent will be sold; it is required to indicate a minimum figure. Market conditions and the level of demand for the shares will be critical factors in the determination of these issues.
While I cannot give an exact timetable as to precise dates because they have yet to be decided, I am able to indicate a broad outline of the planned schedule. The publication of the final prospectus will take place in the middle of June, together with the launch of the application phase of the retail offer and the mini prospectus. Application forms will be issued to all who have registered an interest. In addition, there will be the launch of the institutional offer and the management roadshow commences. By the end of June/early July the retail offer closes, the institutional offer closes, the Government will decide on the final share price and will announce the allocation to retail investors and trading commences on the stock exchanges.
Shortly before the launch of the application phase for the retail offer and of the institutional offer, the Government, in conjunction with its advisers, will determine a price range for the shares. This price range will, of course, be without prejudice to the final share price to be determined by Government but it will serve as a guide to prospective retail and institutional investors and will be published in the prospectus which I anticipate will be issued in mid June. Once the prospectus with the share price range has been published, the sales forces from the syndicate of banks will market shares to institutional investors around the world. A process which is referred to as "bookbuilding" gets under way, that is, institutional investors indicate the volume of shares they are prepared to subscribe for at different prices and a book of orders is built up. This intensive marketing campaign is accompanied by presentations by the senior management of Telecom Éireann to institutional investors. The marketing campaign creates a healthy competitive process among the institutional investors stimulating demand for the shares in line with one of my objectives for the IPO to maximise the proceeds to be returned to the Exchequer from the sale.
The share price for the institutional offer will be determined having regard to the results of this bookbuilding exercise immediately after the institutional offer closes, which is expected in late June or early July. The retail offer will have closed some days earlier so that the level of retail demand can be included in the book of demand and to enable final work to commence on allocation policy. At that stage, when there is a clear picture of the level of demand for Telecom Éireann's shares from both retail and institutional investors, the Government in conjunction with its advisers will decide the exact proportions to be sold to the retail and institutional sectors and the price of the shares.
With regard to the retail offer, I am considering whether any incentives should be offered to retail investors and our advisers are looking at precedents in Ireland and elsewhere in this regard. Clearly, the question of whether there should be incentives and, if so, what type, cannot be considered in isolation, and the final decision in this regard will be made later when levels of interest become clearer.
With regard to the proportion of the shares to be offered to retail investors, one of the objectives of the IPO is to promote wider share ownership in this country. To this end I launched a share registration campaign last month. Members of the public are being offered the opportunity to register their interest in the retail share offer and those who register such an interest will receive priority in the allocation of shares over those who do not register in the event of excess demand for shares.
A major information programme was also initiated in conjunction with the registration cam paign. This included a mailshot to the 2.8 million adults on the electoral register and a major advertising campaign. The Telecom Éireann share information office, a special service to provide information and support to retail investors and to accept registrations, has also been opened.
As was pointed out in the debates in March on the IPO Bill both in this House and in the Seanad, we are not a shareholding nation. Indeed, the idea of investing in shares is foreign to many people. However, I wish to ensure that every citizen in the State is given a fair opportunity to participate in the Telecom Éireann IPO. They must, therefore, be made fully aware of the offer through the extensive media campaign now under way and be given the information and support they require to come to an informed decision on whether they should participate.
While the details of the retail offer have yet to be decided, I confirm that there will be a significant tranche of shares for retail investors. I would like to see a greater allocation to the Irish public than heretofore, but this will be decided by Government at the appropriate time. It would also be my intention to structure the retail offer with the small investor in mind. We want to get the best possible value and there must be an equitable balance between the retail institutions and offerings. Ultimately it is the market which will decide the value of the company. Institutional investors will, therefore, be invited to bid for shares.
The general principles of the IPO also state that there will be no golden share exercised by the Government post-IPO. The State will be no different from any other shareholder. Three further issues arise. Apart from the Irish Stock Exchange with a parallel listing on the London Stock Exchange, a full listing for Telecom Éireann shares will also be sought on the New York Stock Exchange. This will address aspects such as e-commerce, IT, the call centres and so on.
Under the strategic alliance agreement of 1996, KPN/Telia have an option to acquire a further 15 per cent shareholding in Telecom Éireann this year for £200 million. KPN/Telia already holds a 20 per cent shareholding in the company which it acquired in 1996 for an initial payment of £183 million. A further amount, representing 60 per cent of the rise in value of KPN/Telia's shareholding above a certain threshold, is also payable to the State. I believe KPN/Telia will exercise its 15 per cent option but the precise timing of such exercise is the subject of ongoing further discussions.
The price stabilisation mechanism is commonly used in the UK and elsewhere to support a more orderly after-market for new issues or offers of securities. It has the effect of increasing the confidence of investors and the vendor in a flotation. It is already permitted in London and New York and to make it available on the Irish Stock Exchange, the Companies (Amendment) (No. 3) Bill, 1999, sponsored by the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Treacy, was passed by the Oireachtas last night. Priority was given to the enactment of this legislation to provide the option for incorporating a stabilisation mechanism in the Telecom Éireann IPO, should the Government so desire at the appropriate time.
I now turn to the wider context in which the IPO is being undertaken and in which the Telecom Éireann ESOP was concluded. In recent years the focus of Government policy has centred on the need to introduce strong and effective competition as this is the best way to ensure consumers, business and residential, enjoy the benefits of the full range of high quality services at competitive prices. To this end the market has been fully opened. As I indicated in recent debates, we focused on liberalising the market and stimulating competition because it is important for this country to have a modern, high-quality telecommunications sector. Within this new liberalised environment we need a strong and competitive Telecom Éireann if our plans for Ireland are to be realised.
The ESOP is of major importance to Telecom Éireann, its employees and customers. There is still, however, an element of begrudgery. On the sum of £190 million, it is as if 14.9 per cent of the shares have been handed over to Con Scanlon in the CWU free of charge. That is a lie and anyone who writes this is peddling incorrect information. Some 9.9 per cent of the shares have been paid for. The remaining 5 per cent are linked to the transformation process. The ESOP brings important responsibilities as well as benefits. If one has a stake in a company, one will want it to work in order to secure dividends. The employees of the company are rising to the challenge.
The IPO is a logical follow-on from the strategic alliance with KPN-Telia and the ESOP which have changed the ownership structure of the company. There is a broad level of consensus for the flotation. This is testament to our evolving strategy towards the company and the sector in general in recent years. Approximately 980,000 have registered and are seeking more information on the flotation. I will listen with interest to what my colleagues have to say. I commend the motion to the House.