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ABOVE: Big chair contenders Reynolds, Ratcliffe, Quin, Crockett and Gourdie.
At an analyst brief in Sydney on May 27, Telecom chief executive Paul Reynolds floated the idea of a “de-merger.”
Now, of course there’s many a game of cat-and-mouse to be played in the months before Crown Fibre Holdings selects its partner(s).
But if the final result does involve Dr Reynolds’ structural separation scenario, Telecom’s wholesale and retail arms would be split into two separately-listed companies. Current Telecom shareholders would get equal shares in each company.
That raises the question: who would lead the Chorus/Telecom Wholesale company?
And would Dr Reynolds stick around to lead the rump (which beyond its voice, data and mobile business would include IT and telco services division Gen-i, Australian subsidiary AAPT, and Telecom International - although the latter two are on the block)?
“[Chorus] chief executive Mark Ratcliffe’s experience leaves him in the box seat to lead a de-merged Chorus/Wholesale business. His CV for the role is impressive,” Craigs Investment Partners analyst Geoff Zame told NBR.
More so, you could say, given that Mr Ratcliffe’s chief internal rival, Telecom Wholesale boss Matt Crockett, recently announced his resignation (NBR understands his last day is June 16). Could Mr Crockett be departing in a fit of pique over de-merger CEO plans? Or, contrarily, could he be tempted back if a separation is confirmed?
First NZ Capital’s Greg Main the most likely initial scenario was that Dr Reynolds would lead a Telecom retail/corporate company, while loyal lieutenant Mr Ratcliffe took charge of a Chorus/Telecom Wholesale company.
“That would be logical, but it’s probably not a long term solution,” said Mr Main.
“Either way there is uncertainty and investors don't like uncertainty. They don't know who the management team will be post-split”.
Fletcher Challenge-style fragmentation
The ‘other’ business is more interesting.
“It would depend on what exactly is left. A de-merger may well facilitate further spin-offs (as happened with the Fletcher Challenge break-up in the late 1990s) including Gen-i and possibly even mobile,” said Mr Zame.
“Arguably these businesses may be better able to compete standalone and may realise more value for shareholders on that basis. “
Because the fractured retail businesses would be smaller, it would be unlike that Dr Reynolds would want to lead one of them, other than on an interim basis, the Craigs analyst said.
Assuming Dr Reynolds did departs, there are obvious internal candidates for spun-off Telecom divisions, Mr Zame said, including Gen-i chief executive Chris Quin and Telecom Retail boss Alan Gourdie.
NZ First Capital’s Mr Main said a number of other issues potential pre-and-post structural separation issues concern investors.
“Remember they need a CFO as well. [Incumbent Russ Houlden announced his intention to resign May 18]. It will be hard to get one at present as any high flier will be hesitant pre-split. So you may end up with a temporary CFO or one on a one or two year contract.”
Telecom shares (NZX: TEL) closed yesterday at $1.81 after hitting an all-time low of $1.80 during the session.