When Telecom closed its $A2.3 billion, two-stage deal for AAPT in 2000, then chief executive Theresa Gattung famously pronounced her company had “burned its waka on Bondi Beach”.Now, it seems to be looking for an escape raft.READ ALSO: AAPT se
When Telecom closed its $A2.3 billion, two-stage deal for AAPT in 2000, then chief executive Theresa Gattung famously pronounced her company had “burned its waka on Bondi Beach”.
Now, it seems to be looking for an escape raft.
READ ALSO: AAPT sends 80 jobs to Manila
Two remaining contenders have until Friday to submit final offers for Telecom’s Australian division, according to the rumour mill.
The price may not right
The bidders are said to be TPG (ASX: TPM), which has reportedly offered $A350 million, and the tiny Amcom Telecom (ASX: AMM), which is still finalising its financing.
On April 15, Craigs IP analyst Geoff Zame told NBR that an AAPT sale for 4x ebitda, or around $A400 million, would be “a good outcome” for Telecom.
NZ First Capital analyst Greg Main also saw $A400 million as a target price.
And although an AAPT sale has been rumoured for a half-decade, Mr Main said it could be “slightly more pertinent now” as it would help Telecom to pay down debt ahead of its possible separation.
Long-time Telecom observers will be dubious that things are finally coming to a head ( board first discussed a serious offer for AAPT in 2006).
But recent comments from chief executive Paul Reynolds that AAPT is “non-core” - first reported by NBR - have fuelled speculation that this time the telco is serious.
Blown opportunity?
If the $A350 million figure is correct, it would represent a sharp discount on the $US420 million that fibre wholesale company Pacnet is said to have offered for AAPT in December 2008.
At the time of the December 08 offer, market analyst Paul Budde told NBR that Telecom should definitely sell: the Australian market, led by Telstra and SingTel Optus, was becoming all about scale, and AAPT didn’t have it.
The big subsequently got bigger, as Vodafone Australia merged with Hutchison Telecommunications.
Mr Budde also predicted, “the longer Telecom waits, the lower the price” - which now seems prescient.
Meet the bidders
ASX-listed Amcom - a fibre networking specialist - is relatively tiny, with a market cap of $A230 million.
Analysts say it could part-fund an AAPT acquisition by flicking off its stake in high-profile ISP iiNet for around $A160 million - but that would leave a further $A190 million to fund through debt.
(Through an accident of history, Telecom also owns a stake in iiNet; a 17.4% holding worth around $A13.3 million inherited when it bought PowerTel as a supplement to its initial AAPT purchase)
Privately-held TPG, run by Australian rich lister David Teoh, has been on an acquisition spree over the past 12 months, expanding beyond its domestic ISP business.
Mr Teoh is Australia’s 62nd richest man, with a personal wealth of around $A615 million, and has a solid deal-making record.
Most recently, his company paid $373 million for Pipe Networks, which owns a domestic dark fibre network, and is currently laying a new fibre optic between Australia and the US, via Guam. Pipe is also a potential partner for New Zealand’s Kordia in its bid to lay a second transtasman cable.
Multi-billion bath either way
Whether AAPT goes for $A350 million or a shade more, the sale will lock-in a massive write-down.
Telecom bought AAPT for at the height of the dot.com boom, and in total has spent more than $A2 billion on the Australian telco, which today is carried on its books with a value between $A400 million and $A500 million.
In 2007, Telecom recommitted to its Australian division, beefing it up with its $A357 million acquisition of wholesale fibre specialist PowerTel.
The wholesale business has performed relatively well, while AAPT's consumer business has struggled.
The ex-PowerTel fibre assets are said to be a strong draw for TPG, especially a the National Broadband Network looms.
But for Telecom, it would surely be galling to sell the whole of AAPT for less than its purchase price of PowerTel.
Telecom won’t comment. An AFR report said that the telco had retained Goldman Sachs JBWere to advise it on the deal.
