Private equity leveraged buyout and public values: The bankruptcy of Eircom, Ireland

Private equity leveraged buyout and public values: The bankruptcy of Eircom, Ireland

Lemstra, W.
Groenewegen, J.P.M.

Technology, Policy and Management

Infrastructures, Systems and Services

2012-12-31

In 2008 the Delft University of Technology was commissioned by the Ministry of Economic Affairs of the Netherlands to investigate the potential impact of private equity leverage buy-out in the telecommunication sector on the public values that the government wished to safeguard. The study provided an extensive analytical framework and discussed three private equity leveraged buy-out (PE-LBO) cases: Eircom, Ireland; TDC, Denmark; and BTC, Bulgaria. The study concluded that PE-LBO funds make offers that cannot be refused by shareholders, boards and management. Hence, there is no check-and-balance in the form of corporate governance operative. As governments have relinquished control, the targeted firm is left to the ‘forces of the financial market’. The outcome is predictable: financial engineering aimed at a major redistribution of capital, totally contrary to the public interests and likely to end in bankruptcy. The research report was submitted May 2009 and the conclusions and recommendations became subject of controversy within the Ministry. As a consequence the report remained confidential for seven month. Friday, March 30, 2012 the Irish Times reported that Eircom had filed for bankruptcy in the High Court. The PE firm involved with TDC has divested almost all international activities, which accounted for approx. 40% of the revenues, and took a first step in offloading the company through an IPO in 2010. In Bulgaria, the failure of the incumbent to supply broadband has led to approx. 670 ISPs providing fiber based broadband throughout Bulgaria, providing data rates in excess of 10 Mbit/s per customer. In this contribution the authors of the original study provide a review of the study, assessing the new realities with a focus on the developments of Eircom, using TDC as a comparative case. This contribution is structured as follows: Section 2 provides the background to the study. In Section 3 a recap of the methodology applied in the original study is given. Section 4 provides the historical back drop for the PE-LBO development and derives the public values to be safeguarded. In Section 5 the operation of private equity leveraged buy-outs is explained. Section 6 provides the summary and conclusions of the two case studies Eircom and TDC. In Section 7 we assess the impact of PE-LBO for telecommunications policy purposes using the regulatory and developmental perspective. In Section 8 the conclusions are presented.

http://resolver.tudelft.nl/uuid:ebc4658e-94b8-442a-bc31-ab5d312c28c1

Benton Foundation

2012 TPRC; 40th Telecom Policy Research Conference, Arlington (USA), 21-23 Sept. 2012

Institutional Repository

conference paper

(c) 2012 Lemstra, W., Groenewegen, J.P.M.