Mary O'Rourke

[ClubMan]

The fact that the eircom share price dipped below the flotation price and stayed there, I indicated was due to an overpriced flotation.

This is not necessarily the case. The market decides the "right" price for a share at any point in time. Initially the market drove the price up. Thereafter it decided that it was worth less. This has no bearing on the IPO price.

 

[shnaek]

Eircom was my first venture into the market, and my idea was a long term hold. I was a bit niave, but I don't blame the government. However it has opened my eyes to state company flotation. The staff had a huge say in what was done with the company after flotation, and that is not necessarily in the interest of shareholders.

But the main reason that eircom leaves a sour taste for me is that we were ripped off for years with high charges, then the only phone network in the country was sold off. Many of us made losses. Then we were forced to sell so certain big business people and staff could make a killing. Now we have no competition on the local loop so we are still being ripped off by a privately controlled monopoly, and we have bloody atrocious broadband service.

So for me it has to be wireless broadband (if I can get it!) and skype/blueface etc. as long as I don't have to pay line rental.

 

[Murt10]

Eircom was floated with a greenshoe option. This means that the people floating the company could buy or sell shares in the company that they had held back for a specified period after the float and were therfore legally allowed to manipulating the price.

There was no way the the Government was going to allow the share price to fall below the issue price in the first couple of weeks. Once you appreciated this, the best thing was to apply for as many shares as you could, using borrowing if necessary, and then getting to hell out of there as fast as you could.

Moneybags in The Pheonix crunched the numbers on Eircom before the float. He reckoned that the company was totally overstaffed compared to its peers and also over unionised whose unions also happened to be major shareholders in the company. As this was the first of many floats proposed by the government, he recommended burrowing money, applying for as many shares as possible and then getting out quickly (stagging).

Unfortunately for me, around the same time, First Active was being looked at by Anglo and it seemed as if they were going to make a bid. Moneybags recommended getting into FA. I went in at 3.40 with all my profit from Eircom, plus money I had borrowed to buy those shares. I decided to cut my losses when they hit 2.60, having lost the big fat profit I had made in Eircom.

FA still had a lot further to fall, but in the end they came good when they were taken out at a much higher price.


Murt

 

[Humpback]

This is not necessarily the case. The market decides the "right" price for a share at any point in time.

Yes, the "market" does - however, the determination of the flotation prices is supposed to be determined by combination of the "market" at the time of the flotation, the value of the company, and the capital requirements of the owners of the company being floated.

If the "market" value of the shares after the flotation are significantly lower than the flotation price, it must have been one of the other two factors that causes the higher flotation price.

Therefore, either the value of the company is overestimated causing the higher flotation price (which is unlikely unlikely in eircoms situation) or the capital requirements of the owners, i.e. the Government caused the higher flotation price.

Eircom was floated with a greenshoe option. This means that the people floating the company could buy or sell shares in the company that they had held back for a specified period after the float and were therfore legally allowed to manipulating the price.

You make a greenshoe option in an IPO sound like it's something shady and underhanded. Please explain how a greenshoe is, in your opinion a form of price manipulation.

There is research in Germany, if my memory serves me correctly, which actually states that the use of a Greenshoe option is actually designed to support overpriced IPOs in some situations.

 

[ClubMan]

Therefore, either the value of the company is overestimated causing the higher flotation price (which is unlikely unlikely in eircoms situation) or the capital requirements of the owners, i.e. the Government caused the higher flotation price.

You are ignoring the fact that the markets are dynamic so circumstantial changes, such as IT/telecoms stocks in general going out of favour with investors, are also relevant here and could just as easily be the cause of lower share prices in the post IPO period.

 

[Murt10]

You make a greenshoe option in an IPO sound like it's something shady and underhanded. Please explain how a greenshoe is, in your opinion a form of price manipulation.
.

There is research in Germany, if my memory serves me correctly, which actually states that the use of a Greenshoe option is actually designed to support overpriced IPOs in some situations. .

I think you have answered your own question there. In whose best interest is it to support overpriced IPOs. Certainly not the investor coming in off the street. The whole dotcom bubble was based on overpriced IPOs and a lot of people got very badly burned as a result

Murt

 

[RainyDay]

Then we were forced to sell so certain big business people and staff could make a killing.

'forced to sell' is being melodramatic. Over 80% of shareholders accepted the offer price. The only people 'forced' to sell against there will were the minority who rejected the offer. These are the standard takeover rules, and if you don't like the rules, you shouldn't be in the market.

 

[Purple]

I don't like Mary O'Rourke. I find her didactic and get the impression that she doesn’t quite know what she is talking about. I think she did a terrible job in transport and has a history of doing very little in any major department she ran. That said I think an apology was/is all that is needed to put the current pseudo-controversy to bed.
As for the Eircom IPO, she did a great job. She sold at the highest price possible and raised as much money as she could for the people of Ireland. The fact that some of that money was raised from the people of Ireland is irrelevant. Everyone knew the risks and if they didn’t they were fools.
A friend of mine who worked in Nortel at the time gave me an evening worth of advice as to why telecom shares in general were bad news so I never bought Eircom shares but I have been burned in the past with other shares and I am sure I will be burned in the future. The Eircom share price fell in an environment where most (if not all) telecom shares fell, hardly Ms O’Rourke’s fault.

 

[shnaek]

'forced to sell' is being melodramatic. Over 80% of shareholders accepted the offer price. The only people 'forced' to sell against there will were the minority who rejected the offer. These are the standard takeover rules, and if you don't like the rules, you shouldn't be in the market.

I had a good which I wished to keep, but I was unable to do so, due to the 'rules' of which you speak. Therefore I was 'forced' to sell. I may have been in the minority, but I feel that many of the small shareholders (the public) would have preferred hold on to their shares if given a yes or no choice. I don't make this argument to put blame on anyone else. I fully accept that I took a risk and got burned. I now have the experience to know never to trust an Irish government floatation. There are always going to be vested interests involved.

 

[ClubMan]

I had a good which I wished to keep, but I was unable to do so, due to the 'rules' of which you speak. Therefore I was 'forced' to sell. I may have been in the minority, but I feel that many of the small shareholders (the public) would have preferred hold on to their shares if given a yes or no choice.

As RainyDay says, under the normal takeover rules that apply to all public companies, a majority of shareholders agreed to the takeover so those who did not were the only ones forced to sell. I can't see any legitimate complaint about this.

I now have the experience to know never to trust an Irish government floatation.

I don't see how this follows, especially in the context of the eircom sell off?

 

[shnaek]

I am not making a complaint about market rules, just emphasising a point.

"I now have the experience to know never to trust an Irish government floatation. "

It follows in the context of the eircom sell off in that eircom staff got enough of a share in the company to make them a decisive block. They went with Tony over Dennis because Tony offered them more. Not for the good of the company.

All that is fair enough. It is simply the way the market works. But my thoughts are that the government will placate the Unions in the flotation of all state companies and thus the interests of the unions will take precedent over that of the public (potential shareholders). Thus one would be foolish to think they will get long term value from a state floatation.

 

[Sherman]

thus the interests of the unions will take precedent over that of the public

Surely giving the workers/unions a significant shareholding is precisely the way to ensure that their interests and those of the shareholding public become more closely aligned?

 

[MugsGame]

Over 80% of shareholders accepted the offer price.

Or more accurately, shareholders representing more than 80% of the voting share capital accepted the offer. Institutions and large shareholders (such as agents for Valentia and Unions) made up the bulk of this. Due to the large proportion of small shareholders in eircom, I'd be surprised if an actual majority of shareholders (in the strictest sense) accepted the offer.

I was a small shareholder who was forced to sell -- I view it as a cheap lesson in the way the market works.

 

[icantbelieve]

I'm stunned, a statement that giving workers/unions a significant shareholding equates to the interests of the public being met, I thought this kind of socialism had been proven to be a surefire way to economic disaster.

 

[Humpback]

Surely giving the workers/unions a significant shareholding is precisely the way to ensure that their interests and those of the shareholding public become more closely aligned?

Well, if you consider that the workers/unions are the only people to make any consistent money out of the eircom flotation while the actual service provided by eircom to the shareholding public, and the public at large, has consistently suffered since the flotation, it pretty much puts a hole in your arguement.

Many eircom employees are still getting cheques in the post after the flotation deal, and at this stage, most of them don't even know why their getting them.

Don't see where this has benefitted the shareholding public?????

 

[Sherman]

Well, if you consider that the workers/unions are the only people to make any consistent money out of the eircom flotation while the actual service provided by eircom to the shareholding public, and the public at large, has consistently suffered since the flotation, it pretty much puts a hole in your arguement

Not so. The very fact that the unions/employees made such impressive money would indicate that from the pov of shareholders, they're doing a wonderful job. Their interest as shareholders is not necessarily the provision of a spiffing service to customers, rather it is the maximisation of profit, and therefore dividends.

Given that the general public no longer holds shares in Eircom, I would agree that the interests of shareholding employees and the general public have diverged again somewhat - as shown by your unhappiness with their service. However this only goes to prove my original point. As for serving their own interests in their capacity as shareholders however, they seem to be doing a very good job indeed.

 

[icantbelieve]

Now that's what I call spurious, the unions/employees made impressive money because the were given, for nothing, (no performance improvements) a large shareholding in the company. Then when the second sale came along they again benefitted due to the size of their shareholding and of course over both disputes were the possibility of strike action being taken if they weren't given their own way. It's not the dividends that the employees are laughing all the way to the bank with.

 

[Sherman]

The point remains that they have an incentive not to run the company into the ground with idiotic work practices a la An Post - the Eircom shareholder employees have a vested interest in ensuring the company remains a viable enterprise which produces healthy profits, otherwise the value of their shareholding becomes worthless.

 

[icantbelieve]

Right, so eircom as a company still exists because its well run rather than the fact that we're a more electricity dependent society and they have a major headstart on any competition due to their years of being a monopoly. An Post on the other hand are in trouble due to poor work practices rather than fewer letters being posted, competition that can establish themselves very easily and workers who like those in eircom are paid disproportionately in excess and threaten strike action whenever their cosy little number is confronted.
Is it just me or is there still a hint of old school socialism here whereby the workers are good and misunderstood but management are incompentant and heartless.

 

[CCOVICH]

Right, so eircom as a company still exists because its well run rather than the fact that we're a more electricity dependent society and they have a major headstart on any competition due to their years of being a monopoly.

??

Are you confusing Eircom with ESB?