I move amendment No. 1:
To delete all words after "Dáil Éireann" and substitute the following:–
"commends the Government and the Minister for Public Enterprise in respect of the successful flotation of Telecom Éireann (now re-named Eircom) in July, 1999;
notes, the full disclosure of all matters relating to the shareholding in the Company held by the strategic partners (KPN and Telia) in the offer documentation sent to each potential shareholder;
notes, in particular, the mini-prospectus statement that "Comsource, KPN Telecom and Telia have agreed not to sell any of their shares for a period of 6 months from the completion of the offers, but will be free to sell their shares thereafter by way of a stock market offering or otherwise. In addition, each of Comsource, KPN Telecom and Telia have agreed not to acquire any additional shares for a period of 18 months from the completion of the offers, provided that KPN Telecom is not restricted from increasing its shareholding in the Company to a level not exceeding per cent";
notes the Board of the Company's agreement in a transparent manner to the issue of a prospectus including a full price range in advance of the offer;
notes the fact that the Eircom share price equalled or exceeded the flotation price on all but 38 out of the 233 trading days since flotation.".
I thank the Opposition for the measured way in which the matter was introduced. In particular, I thank Deputy John Bruton for the courtesy he and his personal assistant, Mark Kennelly, showed to the Secretary General of my Department. I was not in Ireland yesterday when queries were being made but the dealings were entirely cordial, courteous and constructive.
I shoulder a considerable reluctance to trade words across this House about a private company listed on the Stock Exchange. However, it is obvious that the Opposition shows no such reluctance, and the net effect of attempting to stir controversy regarding the Eircom flotation may be to apply downward pressure on the share price. I wish to make clear to Deputies John Bruton and Yates that I have nothing to fear from this debate. However, it is another matter whether the marketplace will remain immune after the Opposition ventilates half-truths, innuendoes and mad-cap conspiracy theories.
Eircom is a private company with hundreds of thousands of shareholders drawn from every walk of life. I doubt whether these shareholders will welcome their company name being dragged through the Dáil Chamber with its attendant dangers. It may provide a quick, opportunistic headline for Fine Gael but at what cost to the company and its shareholders?
Being in Opposition has its responsibilities, part of which is to look at the broader picture. Deputies John Bruton and Yates have opted for the cheap headline – and it may be a cheap headline in more ways than one. When the dust finally settles on this issue, I hope both Deputies will believe it worthwhile but I doubt the company's shareholders will adopt a similar view.
The debate so far has been measured but I appeal to colleagues in the House to exercise great prudence in refraining from saying anything under privilege which might give rise to erroneous investor perceptions of Eircom. No person in any country can make a commitment that the shares of a floated company will never drop in price. I did not make any such commitment. How could I, as it would be patently nonsensical. Even if I wished to do so, I would have been prevented by the strict laws concerning the listing of companies on the Irish and international Stock Exchanges.
The Opposition's motion seeks to censure me and the Government on three basic grounds relating to the Eircom flotation, first, that the offer documentation failed to make full disclosure of the position of the strategic partners, second, that the partners may wish to sell their shareholding in the company because of their inability to purchase a stake of more than 35% of the company for a period of 18 months following the flotation and, third, that the Government failed to give transparency to the views of Eircom management as to the value of the shares at the time of the IPO.
Before dealing with these matters of detail, I wish to deal with some important issues of principle. Deputies will be aware that I am always happy to come to the House to debate issues and to share information on matters for which I have direct political responsibility. I have never shirked that responsibility. Eircom has been in private ownership for almost a year and I have no responsibility for its commercial operations or its capital structure. Deputies will also know that in the 11 months since its flotation, the share price has traded at or above its flotation price on all but 38 of 233 trading days.
We are all aware that this debate is not taking place on one of the 195 out of 233 trading days that the Eircom share has traded at or above flotation price. That is because the motion has little to do with the flotation process but is an opportunistic exercise driven by current weakness in the share price 11 months after the offering. The motion is driven by the absurd logic that the Government and I are somehow responsible for current share price weakness, or that we could have reasonably foreseen it taking place and failed to warn potential shareholders of its likelihood. It is a motion nurtured in cloud-cuckoo land.
It is difficult to find a single independent observer outside this House who can support this ludicrous proposition. The motion alleges that the offer documentation failed to make full disclosure of the position of the strategic partners. Sadly, the facts utterly fail to support this allegation. This position was made clear in the main prospectus and the mini-prospectus.
The mini-prospectus was distributed to all of the 1.2 million people who registered an interest in purchasing shares. It stated:
Comsource, KPN Telecom and Telia have agreed not to sell any of their shares for a period of 6 months from the completion of the Offers, but will be free to sell their Shares thereafter by way of a stock market offering or otherwise. In addition, each of Comsource, KPN Telecom and Telia have agreed not to acquire any additional Shares for a period of 18 months from the completion of the Offers, provided that KPN Telecom is not restricted from increasing its shareholding in the Company to a level not exceeding 29.9%.
The offer documentation went beyond fully disclosing the position of the strategic partners. It also indicated the influence that decisions made by the strategic partners could have on share price developments. The offer documentation did so in the context of setting out fairly the risks associated with investment in the Eircom stock. The prospectus contained a chapter on risks which was flagged in the contents on page 2.
The mini-prospectus also contains the following statement addressed to all potential investors in the company under the heading "Risks" which states:
You should carefully consider the risks described below and the information in the Prospectus before purchasing Shares. The value of your Shares may be adversely affected by general market conditions and/or the possibility of further stock market offerings of the Shares by, among others, KPN Telecom and Telia. Furthermore, there can be no assurance that the Shares will trade in the stock market subsequent to the Offers at or above the price at which those Shares are sold in the Offers by the Ministers. In addition, if any of the risks summarised below actually occur, the Company's business, financial condition or results of operations could be materially adversely affected and the trading price of its Shares could decline.
The mini-prospectus goes on the set out the risks: increasing competition, which is happening; the entrance of a third mobile phone operator, which will happen; the company's changing regulatory environment, which will also happen; the consequences of the company failing to successfully implement its transformation programme; rapidly changing technologies; the possibility of a decline in the company's revenues, profitability and growth rate; a slowing of growth in the Irish telecommunications market; the fact that the company's investments in new business areas and markets could require substantial capital; the company's computer systems; the need to hire and retain skilled personnel; the fact that the company may be influenced by significant shareholders whose interests may not be aligned with those of shareholders; the possibility that an adverse decision in legal proceedings could require the company to pay damages or fines; the fact that the company is dependent on its continuing good relationship with its employees and their trade unions; and health risks, including those involving mobile telephones.
This is a comprehensive and sober list of risk factors associated with investing in Eircom which demolishes the motion's argument regarding lack of disclosure by the selling shareholder. It must also be recognised that all publicity material issued in connection with the sale stated that share values could go down as well as up.
The prospectus dealing with the sale of shares in Eircom was cleared by the New York, London and Dublin Stock Exchanges in advance of the issue of the document in mid June 1999. This involved an arduous process of clearance of texts lasting over a period of months. All of the exchanges involved have testing standards in terms of the representation of all material relevant to a company being floated.
In relation to the second allegation contained in the motion, the decision of KPN to sell its stake is that company's decision alone. With that stake potentially about to come to the market, it would be wrong to say anything that might be damaging to the interests of Eircom shareholders or to KPN at this time. KPN has stated publicly that its decision to sell has come about as a result of its strategy to focus more on mobile telecommunications and its need to fund this strategic shift. The only point I want to make at this stage is that there was little point in floating Eircom only to have an immediate takeover of that company in the aftermath of flotation.
In relation to the third allegation contained in the motion, the prospectus and the price range, which was set prior to the flotation, were agreed by the Government and the company. The final price of £3.07 was within this price range. The prospectus, in its totality, is the responsibility of the board. The prospectus contained a price range and that price range was approved by the board.
The balance sheet of the company at the time of the flotation was very strong. The price set by the Government for Eircom at the flotation date was set on the basis of what the market was prepared to pay and based on the advice of expert advisers.
The pricing of the shares in July 1999 involved balancing the need for a fair price for taxpayers and the need for a fair return for retail and institutional investors. Criticism was expressed in the immediate aftermath of the flotation from certain quarters that the price of Eircom shares was set too low by the Government. In particular, it is worth remembering that the institutional offer was no fewer than 16 times over-subscribed, even at the top of the price range.
The views of those commentators, many of whom are the most respected and reputable journalists in the State, is best expressed by a quotation from the press immediately after flotation, "the obligation of the State as owner – since the State is the guardian of the public finances – was to sell Telecom at the highest price the market would bear."
The Government could have chosen to float the company at a higher price than it did, but it chose not to do so. It received advice from one of the joint global co-ordinators to the offering, Merrill Lynch, to float the shares at £3.27. Merrill Lynch has since been appointed advisers by Eircom and is now advising it.
As the House knows, the launch price was £3.07. In the immediate aftermath of the flotation the shares rose by 20%. The share has traded well above flotation price most of the time since the flotation. The share price has been below the issue price on only 38 days out of 233 days since the launch.
One commentator, Colm Rapple, wrote after the flotation that the company was sold at 20% below its market value, which represents a loss of almost £700 million. Many commentators believed that the Government struck the right balance. An editorial in The Irish Times declared “The Government appears to have pitched the flotation price (£3.07) at precisely the right level: anything less and it would have been vulnerable to the charge that the Company was being sold off too cheaply.”
In the first three months of this year, the share price was never below the issue price and it reached a high of £3.78 on a number of occasions in January, February and March 2000, a premium of 23% on the flotation price. I cannot tell people when to buy or sell shares, they are the masters and mistresses of that. I was not called to Dáil Éireann to speak about why the share price was 23% higher than the flotation price during the first three months of this year.
The potential returns to Eircom investors have been available against the background of a market which, at best, has been sluggish or in decline since the flotation. It is worth remembering that sentiment in the stock markets has turned against European telecommunications stocks in recent months as high technology companies in general have suffered sharp share price declines. A leading European telecommunications index has fallen by 35% since 6 March. British Telecom, Deutsche Telekom and France Telecom are currently 45%, 41% and 35%, respectively, of their share price highs in 2000.
This motion is not about the fundamentals underlying the Eircom flotation. This debate could not have taken place on 195 of the 233 days since the shares were floated. The motion has been put forward without regard to the interest of the shareholders in the company. It seeks to use current market conditions for cynical ends.
I wish to return to the question posed by Deputy Yates's mad-cap theory. He appears to believe the report compiled by merchant bankers, ABN Amro, for the company was suppressed in some way. This report suggested a lower flotation price. We did not commission this report, it was commissioned by Eircom.
