Singapore's M1 Up For Sale, But Money Not The Main Issue
June 5, 2001
Dow Jones Newswires
By PUJA RAJEEV
Of DOW JONES NEWSWIRES
SINGAPORE -- MobileOne Pte. Ltd. has hung out a "for sale" sign, but the competition to own Singapore's second largest mobile phone operator will be far from simple.
Regional Wireless Co. - a venture between Hong Kong's Pacific Century Cyberworks Ltd. (H.PCW) and Australia's Telstra Corp. (TLS) - and Malaysia-based Maxis Communications Bhd. have thrown their hats in the ring, but as is often the case in cross-border telecom deals, the winner may not be the highest bidder.
Politics, regional aspirations, deft negotiating skills - and not just price - will determine who gets to own one of Singapore's most-respected telecoms companies, analysts say.
With some 850,000 subscribers - and a third-generation mobile communications license - M1 is without doubt an attractive asset. It was the first to break Singapore Telecommunications Ltd.'s (P.SGT) 118-year-old monopoly in the local market and is popular among young, free-spending Singaporeans.
"M1 is a very solid number-two player and the management team is very, very good," said Scott Brixen, telecom analyst with Morgan Stanley Dean Witter.
The bidders have their own reasons to persuade M1's major shareholders to part with their stakes. Between them, Keppel Telecommunications & Transportation Ltd. (P.KTT), Singapore Press Holdings Ltd. (P.SPH), Cable & Wireless Communications PLC (CWZ) own 85% of M1. PCCW already owns another 15%.
Regional Wireless and Maxis are looking to enter Singapore not only because it is a sophisticated and mature market, but also to further their regional ambitions, says HSBC Securities' telecom analyst Louigi Allado.
"Regional Wireless is currently a one-asset company, so it is looking at Singapore as a regional platform," said an investment banking source close to the deal. Regional Wireless' assets consist primarily of the former mobile telecom operations of Cable & Wireless HKT Ltd. The source said Regional Wireless may next seek to enter Malaysia and Indonesia.
"RWC (Regional Wireless) wants to do in Asia what SingTel is doing in Australia," he added, referring to SingTel's recent bid to acquire Australia's number-two mobile operator Cable & Wireless Optus Ltd. (A.CWO)
Maxis, meanwhile, is Malaysia's number-one mobile company, and is looking to keep its top spot. Allado says the company would gain "tremendous leverage" with the acquisition of M1. Faster connectivity to Singapore would boost its popularity in Malaysia, while also giving it a solid footing in Singapore. Such a tie-up would also likely take the lion's share of the lucrative Singapore-Malaysia telephone traffic from under SingTel's nose, analysts say.
According to local news reports, both bidders are willing to cough up more than US$1.4 billion for M1.
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Final Price Could Be US$1.5B-$1.6B
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So who has the upper hand?
"Maxis has more synergies with M1," said Kelvin Tay, telecom analyst with ABN Amro. "But PCCW, which is both a shareholder as well as a bidder, could scuttle the deal," he warned.
Even if PCCW's 15% stake in M1 doesn't obviate Maxis' victory, "it certainly makes it a little bit easier for Telstra to get involved," said Brixen.
Maxis is owned by Malaysian tycoon Ananda Krishnan. And, like M1, it targets the youth market and uses similar branding and promotions for its services.
But Brixen adds that although a Maxis-M1 fit seems snug, "you wouldn't get the regional footprint that you would get with the Telstra joint venture."
Some analysts worry that politics may also be an important part of any deal. Although M1 is not government owned, the Singapore government could still nix a Maxis bid for M1 - particularly if it wanted revenge for perceived interference by the Malaysian government in last year's unsuccessful bid by Singapore Telecom to take over Malaysia's Time Engineering.
But Morgan Stanley's Brixen said he thinks that may not be the case. Singapore is trying to be as open as possible following the liberalization of its telecom market in April last year, he says. A tit-for-tat response "is not the strategy they want to adopt," he says.
For the time being, both bidders have enough firepower to up the stakes for Singapore's second largest mobile phone operator.
Allado estimates the final price will be between US$1.5 and US$1.6 billion.
According to investment banking sources Regional Wireless is in talks with Citigroup Inc. (C), Barclays PLC (BCS) and UBS AG (Z.UBS) for the needed financing. And Allado says that "arranging bridge financing for Maxis should not be a problem."
Analysts say the urgency to consolidate M1's market position is also clear.
A mobile services joint venture between SingTel and Virgin Group of the U.K. is due to become operational by end-June. The venture targets the same market as M1 and will heat up competition in the youth mobile phone market.
-By Puja Rajeev, Dow Jones Newswires; 65-421-4824; puja.rajeev@dowjones.com
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