Singapore Telecom Releases Formal Offer for Optus Deal
May 22, 2001
Tech Center
By GRAHAM MORGAN
Dow Jones Newswires
SYDNEY, Australia -- Singapore Telecommunications Ltd. moved one step closer to creating a pan-Asian communications giant, releasing its formal bid document for Cable & Wireless Optus Ltd., but receiving only lukewarm support from independent directors of the target company.
The merged entity will have assets of 29.2 billion Singapore dollars (US$16.1 billion) after the takeover of the Australian telecommunications company.
It will represent a formidable rival to Australia's largest telecom Telstra Corp. and Hong Kong's Pacific Century CyberWorks Ltd., which finalized the merger of their Asian assets in February.
1Singapore Telecom Favors the Light Touch (April 30)
U.K.-based Cable & Wireless PLC, which owns 52.5% of Optus, has ensured passage of control to SingTel by agreeing to the terms of the friendly takeover. The bid values Optus at nearly 14 billion Australian dollars (US$7.42 billion)
Although the takeover was a foregone conclusion, the formal bid received a frosty reception from independent directors of Optus and independent evaluator Grant Samuel & Associates.
After failing to win better terms from SingTel, despite detailed negotiations, the five independent directors stopped short of saying the bid was fair.
"On balance, your independent directors recommend acceptance of the SingTel offer," they said. "You should be aware that the decision to recommend acceptance was made after much deliberation and was at the margin."
Grant Samuel summed up the bid, saying it was "not fair but is reasonable." The apparently conflicting judgment is based on the fact that SingTel's share price has slumped since the bid was announced late March, in line with many other telecoms around the world.
This slump has pushed the value of Optus shares under the deal well below the valuation range of between A$3.85 and A$4.42 a share set by Grant Samuel in its independent experts report.
The fundamentals of the finalized SingTel bid are unchanged from a draft-bid document released late March, which gave Optus shareholders three alternative options: a straight SingTel share swap; a share swap plus cash; and a share, cash and bond offering.
The share swap involves the exchange of 1.66 SingTel shares for every Optus share. When the bid was first launched it valued Optus shares at A$4.57 each. But at the closing share price Friday, this alternative values Optus at A$3.05.
The second alternative is 0.8 SingTel shares for each Optus share plus A$2.25 in cash. Under this alternative, an Optus share was valued at A$4.45 in late March and A$3.72 as of last Friday. This alternative is the one that Grant Samuel recommended for Optus shareholders as the "closest to being fair."
The third option is for 0.54 SingTel shares plus A$2 in cash and A$0.45 in SingTel U.S. dollar-denominated bonds, and is only likely to be taken up by Cable & Wireless.
While the five Optus independent directors recommended that minority shareholders sell to SingTel, as they will for their own shares, it appears to be with some reluctance.
"We have sought to negotiate from SingTel a better deal for shareholders on a number of occasions. We have not been successful in this regard and don't believe that a better offer will be made at the present time," they said.
On Monday, Optus ended trade five Australian cents lower at A$3.50. It was one of the local market's most active issues with 8.7 million shares traded. SingTel on Monday fell six Singapore cents to close at S$1.69.
SingTel President and Chief Executive Officer Lee Hsien Yang spoke about the acquisition at a press conference held in the Sydney headquarters of Optus.
The merged SingTel-Optus operations will be "cash-flow accretive from day one," and "particularly well positioned for growth," Mr. Lee said.
He also foreshadowed "significant cost savings and revenue enhancing opportunities," which both companies are already working on, but didn't give further details.
"Optus shareholders who accept our offer and receive SingTel shares will have a unique opportunity to participate in a leading Asia Pacific integrated communications service provider, with diverse, stable revenue streams and attractive growth prospects," Mr. Lee said.
Mr. Lee brushed aside two key sticking points, dealing with satellite licenses and questions over the ownership of the Southern Cross Cable Network joint venture, that have bogged down sentiment toward the deal over the past two months.
SingTel has preliminary approval from the Australian Stock Exchange to list its shares and will delist Optus if it secures 100% control.
Write to Graham Morgan at graham.morgan@dowjones.com2.
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