FOOL PLATE SPECIAL: Cable & Wireless Sells Subsidiary to SingTel
Vodafone withdrew from the bidding for Cable & Wireless Optus over the weekend, leaving Singapore Telecom's $8.9 billion offer as the last on the table. This represents a 20% premium over Optus' market value, and is a pretty good deal for Cable & Wireless. It also represents a long-awaited taste of victory for SingTel, which was shut out of another C&W sale last year.
By Bill Mann (TMF Otter)
March 26, 2001
FOOL 50 component Cable & Wireless (NYSE: CWP) has accepted a bid of $8.9 billion from Singapore Telecom for its 52% stake in Cable & Wireless Optus, the second-largest carrier in Australia. The deal will be consummated in a combination of cash, equity, and debt from Singapore Telecom, which is 78% owned by the government of Singapore.
This announcement ends a heated battle between SingTel and U.K.-based wireless carrier Vodafone (NYSE: VOD) for C&W Optus. (This assumes Cable & Wireless is exiting the scene and Optus drops the "C&W.") Vodafone pulled out of the bidding yesterday, stating in part that it did not believe the numbers added up for its shareholders.
With the exit of Vodafone, the table was clear for SingTel to sew up the deal with C&W. Vodafone's comments aside, there had been some grumblings from regulators that a Vodafone deal would have met heavy scrutiny from regulators, as it would have given the company control of a majority of the Australian wireless market.
Second time's the charm for C&W/SingTel
For Cable & Wireless, this move is yet another in its quest to exit the low-margin consumer telecommunications businesses it had built up around the globe. That strategy began in earnest last year when the company sold its U.K. consumer long-distance system, then placed its Hong Kong Telecom (HKT) subsidiary on the auction block.
Interestingly, many of the same players that were involved in the HKT deal were once again prominent here. SingTel was the losing bidder for HKT, which went to Richard Li's vaporware start-up Pacific Century Cyberworks (NYSE: PCW) for approximately $25 billion in cash and stock.
In the case of Optus, Cable & Wireless was once again the seller, SingTel was a prospective buyer, and the Li family was once again deeply involved. In order to gain regulatory approval, Vodafone planned to transfer its Optus wireless customers to Hutchison Whampoa, controlled by Li Ka-Shing, Richard Li's father. In the Hong Kong Tel deal, The elder Li's Beijing connections were widely rumored to be instrumental in helping curry favor for the Pacific Century bid.
But in this case, SingTel was the victor. Personal and business intrigue factors aside, this shows that a trend which hit Europe has now spread to Asia: The mid-sized carriers are having to consolidate in order to remain relevant. SingTel, which has only 3 million potential customers in its home market, must look overseas for its growth, much in the same way KPN (NYSE: KPN), Telefonica (NYSE: TEF), Vodafone, and others have had to do.
Cable & Wireless, meanwhile -- directly on the heels of a significant earnings and layoffs warning -- is continuing to transform itself into a global data carrier rather than a mishmash of national long-distance companies. (We've got more on the telecommunications business in our Telecom & Networking InDepth area.)
While the sale of these assets allows C&W to walk away from several components that no longer fit its global strategy, increased price competition in global data has squeezed profit margins in what will be C&W's core services.
The SingTel deal adds more cash to Cable & Wireless' substantial warchest, putting it farther into a realm unheard-of among telecom carriers: It has significantly more cash on hand than it does debt. This provides the company with an enormous advantage: the ability to execute capital projects now when demand for its suppliers has cratered.
Time will tell whether C&W has the foresight to take advantage of its surplus, though in light of the utter collapse of voice telecom prices around the world, Cable & Wireless' earlier decision to de-emphasize that portion of its business looks downright brilliant.
To Bill Mann, happiness is a nun in a Habs sweater. At time of publishing, Bill held beneficial interest in Cable & Wireless. To view all of Bill's holdings, please see his profile. The Motley Fool is investors writing for other investors.
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