Singapore Telecommunications Seals Deal for Cable & Wireless Optus Stake
March 26, 2001
Tech Center
By S. KARENE WITCHER
Staff Reporter of THE WALL STREET JOURNAL
SYDNEY -- Singapore Telecommunications Ltd. has sealed a deal to acquire a controlling stake in the Australian unit of London's Cable & Wireless PLC in a hotly contested battle that is a major victory for government-linked SingTel's attempts to expand its reach in the Asian-Pacific region.
According to a person close to the transaction, the British parent of Cable & Wireless Optus PLC decided to accept SingTel's offer for 52.5% of Optus. At the same time Sunday, Vodafone Group PLC, which was vying for Optus, said it had withdrawn from the bidding process.
1 The Competition Over the Optus Bid Heats Up Between Vodafone, SingTel (Mar. 23)
2 Vodafone Plans to Make Conditional Bid for Cable & Wireless Optus Next Week (Mar. 22)
3 SingTel's $8.93 Billion Offer for Optus Is 20% Premium Above Current Value (March 12)
Terms of the SingTel transaction were expected this morning in Sydney, when the company makes its offer to the rest of Optus's shareholders. But the person said the offer values all of Optus at about 17 billion Australian dollars (US$8.33 billion) and would comprise several options including accepting a mix of cash and shares, or just SingTel shares. Based on Friday's closing price of A$3.99 for Optus shares on the Australian Stock Exchange, the offer is pitched at a premium of more than 13%.
Optus has about A$3 billion in debt, but it is unclear whether SingTel will assume that debt as part of the transaction. The transaction will reduce the government's 78% stake in SingTel. Cable & Wireless will receive mostly cash, but will wind up with a small stake in SingTel, the person said.
To encourage minority shareholders of Optus to accept the offer, the person said SingTel plans to obtain a listing on the Australian Stock Exchange in addition to its listing in Singapore. That will facilitate the trade of SingTel shares for shareholders in Australia, the person said.
SingTel plans to keep all Optus assets, the person said. Optus is a full-service telecommunications company that provides mobile telephony, pay television, Internet access and data and other business services. Cable & Wireless put the unit on the auction block after deciding to concentrate globally on data and business services, rather than operate a full-service company.
Because Vodafone intended to keep the mobile-telephone business but sell Optus's assets, some market watchers believed the British company would favor an offer from Vodafone. But Vodafone ran into regulatory hurdles because it already holds about 19% of Australia's mobile market and acquiring Optus would give it about 53%. To make the deal more palatable to Australia's antitrust regulators, the Australian Competition and Consumer Commission, Vodafone struck an alliance with the Australian arm of Hutchison Whampoa Ltd. of Hong Kong to transfer about one million of Optus's 3.4 million subscribers to Hutchison, which holds less than 1% of Australia's mobile market. That would have left Vodafone with around 43% of the market, and given Hutchison, a latecomer to Australia, about a 10% market share.
The regulators were expected to review Vodafone's proposal next week, and a spokeswoman for the commission said Sunday that the regulatory body had indicated in the past that "it would be hard for Vodafone to take over the whole of Optus." But in a statement Sunday, Vodafone said it was withdrawing from the bidding because it concluded the transaction wouldn't be "in the best interests" of its shareholders. Vodafone was believed to have made a preliminary offer for Optus that would have valued the company at A$20 billion. On Sunday, a Vodafone spokeswoman declined to comment on the size of the offer but said Vodafone decided "the numbers didn't stack up" for buying Optus. Telecom Corp. of New Zealand also was in the race, but wasn't viewed as having the financial firepower to pull it off.
Ivan Tan, a spokesman for SingTel in Singapore, declined to comment. In London, a spokesman for Cable & Wireless declined to comment.
If minority holders of Optus accept SingTel's offer for their shares, it will be third-time luck for SingTel. Over the past year, the Singapore company lost out on two transactions to bolster its reach. It tried to acquire Cable & Wireless's Hong Kong arm but the British company chose to sell to Hong Kong entrepreneur Richard Li's Pacific Century CyberWorks Ltd. Then, a deal for SingTel to acquire Time Engineering Bhd., a Malaysian telecommunications company, fell apart.
Key Facts
Comparing SingTel and Optus; figures converted to U.S. dollars from local currencies
Sales
SingTel: $2.06 billion for the nine months ended Dec. 31, 2000
Optus: $1.16 billion for the fiscal first half ended Sept. 30, 2000
Net profit
SingTel: $1.05 billion for the nine months ended Dec. 31, 2000
Optus: $76.13 million for the fiscal first half ended Sept. 30, 2000
Mobile-phone subscribers:
SingTel: 6 million subscribers in Singapore, Thailand and the Philippines
Optus: 3.4 million subscribers in Australia
Earlier this month, Richard Alston, Australia's communications minister, expressed some concern about the role the Singapore government might play in managing Optus, Australia's second largest telecommunications carrier and the main competitor to Telstra Ltd., which is partly owned by the Australian government. Fueling those concerns is the fact that not only is SingTel 78%-owned by the government, but it also is run by Lee Hsien Yang, the younger son of Senior Minister Lee Kuan Yew and the younger brother of Deputy Prime Minister Lee Hsien Loong.
The Singapore government quickly moved to reiterate its oft-stated position of an intention to reduce its stakes in such government-linked companies, and added that it would forfeit its so-called veto share in SingTel. Forfeiting that vote means "we will remove the special share which gives the government the right to veto major decisions in the company," the deputy prime minister told Singapore's Parliament.
SingTel needs to expand abroad to increase its earnings base in the relatively small market of Singapore, where it faces increased competition. It has stakes in Advanced Information Service PCL in Thailand, Globe Telecom Inc. of the Philippines and India's Bharti Group. It also has stakes in Belgacom in Belgium and is part of New Century Infocomm, a consortium that will operate a fixed-line network in Taiwan.
With Optus, it gains control of one of Australia's top-10 largest companies. Besides having roughly one-third of the mobile market, Optus has 300,000 dial-up Internet subscribers, and 450,000 subscribers to a basket of services including fixed-line telephony, high-speed Internet access via broadband cable and pay television.
Still, some analysts think investors in SingTel won't like the Optus deal. The price of SingTel shares has weakened since SingTel flagged its interest in Optus in February. "I really think [SingTel] shares are going to fall" if the bid is over A$17 billion, said Ali Naqvi, head of research at Credit Suisse First Boston in Singapore.
Mr. Naqvi said investors also will want to know whether Cable & Wireless has agreed to hold on to the SingTel shares it gets for a certain period of time so that there is no overhang of shares on the Singapore stock market
-- Hasan Jafri of Dow Jones Newswires in Singapore and Graham Morgan of Dow Jones Newswires in Sydney contributed to this article.
Write to S. Karene Witcher at skwitcher@awsj.com4
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