The board of Eircom is considering a £700 million (€889 million) share buy-back following the sale of Eircell to Vodafone.

The disposal of the mobile business to the British group is due to be announced in the middle of next week and could fetch about €4.7 billion, substantially less than the €5.1 billion originally mooted. Talks between the two sides will continue over the weekend.

Merrill Lynch, the US bank advising Eircom, has prepared a paper for the board setting out a number of options for the company following the sale of Eircell.

The board is keen to explore alternatives to the immediate sale of its fixed-line business to Mr Denis O'Brien who has tabled a €2.25 billion offer.

The US bank has proposed that Eircom buy back up to £700 million of its own shares following the sale of Eircell.

The buy-back would push up the company's share price and make it possible to achieve a higher price for the fixed-line business, it argues. It is unclear where the funds for the buy-back would come from as any attempt to use some of the Eircell proceeds would be opposed by Comsource, the largest shareholder in the group.

Eircom has no debts and considerable cash resources which have been earmarked for capital investment. These funds could be used instead for the share buy back, it has been suggested.

Comsource could be expected to support such a buy-back as it would be in line with their goal of exiting the company. The DutchSwedish alliance has made it clear that it has no desire to remain as long-term investors in Eircom after the sale of Eircell.

KPN, the Dutch phone company which makes up 60 per cent of Comsource, has already had talks with a consortium led by businessman Mr Paul Coulson about the sale of its 21 per cent after the Eircell sale.

The talks, which ended two weeks ago, were inconclusive but could be quickly reactivated, according to sources.

Eircom's board has not discussed the Merrill Lynch paper in any detail as the Vodafone deal has been the focus of its attention. Directors are unlikely to discuss it in any detail until the new year.

Mr Alfie Kane, the chief executive, is understood to prefer a straight sale of the fixed-line business to Mr O'Brien or any other bidder. He would like to see this deal put to shareholders at a general meeting in the new year along with the Eircell sale.

Eircom and eIsland, the consortium led by Mr O'Brien, signed a confidentiality agreement a week ago and have begun serious talks. Eircom has indicated that eIsland's initial bid of €2.25 billion is too low but the O'Brien consortium has yet to decide if an increased offer is justified.

Eircom shareholders are expected to get Vodafone shares in exchange for Eircell and cash for the fixed-line business. They will also retain a stake in the rump multimedia business which is valued at up to €700 million.

When all three elements of the break-up are taken into account, they will get about €3.90 per share that most paid for their stakes in last year's flotation.