Finally, SingTel Doesn't Lose
By Adrian Tan, AsiaWise
29 Mar 2001 14:30 (GMT +08:00)
Singapore Telecommunications (SingTel) had been repeatedly humiliated in its attempts to be a regional player, most notably in its failed bids to take stakes in Cable & Wireless HKT and Time of Malaysia.
In the HKT case, it got outsmarted by Richard Li's Pacific Century CyberWorks (PCCW) -- with help from unspecified quarters, or so it was rumored. In the second case, it just wasn't clever enough to see that it would be tripped up by Malaysian politics.
So finally…trumpets please… SingTel bags something in a three-way race with the serious competitor in the trio tied to a tree. And now with Australia's Cable & Wireless Optus in its stable, SingTel becomes the third largest telco by market capitalization in Asia (excluding Japan), behind China Mobile and Australia's Telstra.
Yippee. So what did the market think?
Not a lot. Its already battered share price fell 9.5% on Monday to S$2.19. And on Tuesday it fell another S$0.31 to a historical low of S$1.88 before recovering to close at S$1.95. All this happened, incidentally, after the share price had been sliding for over a week on rumors of an Optus deal.
Anyway, investors feel SingTel overpaid, even though the price (between 14.2 and 15.8 billion Australian dollars) was below the rumored A$17.5 billion. The offer valued Optus at between A$3.94 and A$4.57 per share (this for an all share swap) depending on which package investors opted for. And after SingTel's share-price slide, the offers were worth a lot less -- to be precise, A$2 billion less. SingTel would only be paying A$12.2-13.8 billion, or between A$3.39 to A$3.98 an Optus share.
Earlier, ING Barings had valued Optus at A$3.50 a share using discounted cash flow analysis. But under the break-up model valuation, it said Optus would be worth A$4-5 per share. SingTel, according to these bankers, is interested primarily in Optus' mobile and corporate data businesses, not its consumer fixed telephony, multimedia and pay-TV businesses, which would likely be sold off.
But all this is beside the point. It isn't so much a question of what SingTel paid for Optus as it is a question of the price SingTel paid to become a leading player in Asia -- so it could see half its revenues derive from business offshore. Only time will tell if SingTel can recover ground lost to fulfilling its mediocre ambitions through the Optus deal.
There were three bidders for Optus -- SingTel, Vodafone and New Zealand Telecom, which had an outside chance at best.
Vodafone faced potential regulatory problems -- if it took over Optus, its market share might have exceeded 50%, something Australia's competition authorities didn't like. And Vodafone would have to pay in shares -- not a big turn on for C&W, which is up to its armpits in PCCW shares, the flying bricks of share markets in Asia, Europe and America.
The Optus deal was really SingTel's to lose -- not exactly spine-tingling stuff. The M&A prize these days surely goes not to the company with the deepest pockets, but the one with little in assets and high market valuation -- and enough chutzpah to persuade shareholders of another company with big assets, to join forces in a merger. The AOL Time Warner deal is an excellent example.
Another would be PCCW's merger with Cable & Wireless HKT. This deal featured another hallmark of brilliance -- timing. Critics will carp about PCCW's loss of value but what price would PCCW fetch now if it hadn't gotten its grubby little fingers on some real assets? And besides, PCCW used bank borrowings, not its own money to buy HKT.
A footnote: SingTel had better recruit new talent in its treasury department. Running a company that is in net cash is not the same as running a company that has debt. And debts look set to grow because SingTel's chairman is talking about doing further deals.
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