One.Tel, a Failing Stock That Fooled the Analysts
Mathew Carr Bloomberg News
Friday, June 15, 2001
It has been described as a 'powerful' name.
SYDNEY Goldman Sachs Group Inc. began covering Australia's fourth-biggest cell phone company with a burst of optimism. "One.Tel is here to stay," the bank declared in a report April 26. One month later, One.Tel went bust. Backers such as Lachlan Murdoch and James Packer said they had been "profoundly misled" about its finances. And Goldman, like many investment banks that made the wrong call on One.Tel, is eating its words.
"We were obviously wrong," said Jason Billings, the Goldman analyst who rated One.Tel "market perform" in the bank's report. "If directors believe they are being profoundly misled, it's difficult for analysts not to be misled." Whether that could happen again is another matter.
Like stock markets the world over, Australia is home to many phone companies that failed to translate dreams into reality. Half of the 30 stocks in the ASX Telecommunications Index have fallen more than 50 percent this year. Open Telecommunications Ltd., which recently won a contract to provide services to Pacific Century CyberWorks Ltd. of Hong Kong, said this week that Wayne Passlow had resigned as chief executive. No other Australian phone company, however, carried quite the glow of One.Tel. Mr. Murdoch and Mr. Packer, the sons of Australia's two richest media tycoons, sank 1.2 billion Australian dollars ($625 million) into a company that Goldman described as having "a powerful brand name" at home and abroad.
With that cachet, "investors may have assumed that the company had greater access to capital to fund its commitments," said Jonathan Cornish, an analyst at Fitch Inc., a ratings company.
In fact, One.Tel may have been insolvent as long ago as last Dec. 31, according to Peter Walker, managing partner at bankruptcy specialist Ferrier Hodgson. Mr. Walker said in court papers filed last week, referring to companies under the One.Tel umbrella, "Insolvency could possibly extend back to Dec. 31, 2000, or earlier."
Investors had support from analysts. Besides Goldman, Salomon Smith Barney Inc., Merrill Lynch Co., BNP Paribas SA and Sydney-based Macquarie Equities Ltd. all said One.Tel shares were worth buying.
Analysts say there is little they could have done otherwise because One.Tel insisted that its finances were healthy. The company said Jan. 16 that its business was "tracking very well" and that it would have at least $75 million in cash by the end of June, and it restated its forecasts in April.
Some investors acted. BT Financial Group, the fourth-largest Australian fund manager, cut its One.Tel stake to 5.2 percent from 6.5 percent on May 21, Australian Stock Exchange filings show. Its stake fell below 5 percent a day later. BT spokesman Jason Collins declined to comment on why it had cut its stake.
Other sellers included companies associated with the former One.Tel directors Rodney Adler, Steven Gilbert and John Greaves, according to the Melbourne Herald Sun. They sold 42.6 million shares this year before the stock was suspended from trading May 25, and the company's operations director, Kevin Beck, sold 1 million shares, the paper said.
Copyright © 2001 The International Herald Tribune
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