News

Shares in Australian-based private equity firm Babcock and Brown took a further hammering from the share market this week. Its shares have fallen 27% in the last few weeks and a massive 74% since January.

So why does it matter if Babcock and Brown hits the wall? The answer for some telecommunications employees and customers is that the company, through one of its many funds, is the owner of  the major Irish telco eircom.

Babcock and Brown acquired a majority holding in eircom in 2006 and immediately proceeded to develop plans for breaking the carrier up by selling off its mobile and retail businesses and retaining a wholesale only network company, Netco.

The idea was to “release shareholder value” i.e. make quick financial gains by asset stripping eircom and to create a remaining “utility” business which would be less risky (and so could be loaded up with ever greater debt) than a fully integrated company.

As it has turned out, Babcock and Brown don’t seem to have been able to make the numbers add up and the eircom  break-up is off the agenda. But that still leaves the company weighted down with debt and in the hands of a private equity company that right now is on the ropes.

With Macquarie Bank indicating it would like a piece of the National Broadband Network (NBN) action, the activities of Babcock and Brown are a timely warning of the dangers of allowing private equity companies to control critical national infrastructure.