Further detail on OzEmail
MCI WorldCom Makes A$520 Mln Offer for OzEmail (Update2)
Sydney, Dec. 14 (Bloomberg)
MCI WorldCom Inc., the No. 2 U.S. long-distance phone company, launched a A$520 million (US$320 million) takeover bid for OzEmail Ltd., one of Australia's biggest Internet service providers.
Jackson, Mississippi state-based MCI WorldCom has already secured 14.9 percent of OzEmail for about A$70 million through the issue of new stock at US$20 per American Depositary share. It will bid US$22 per ADS for the balance of the company, compared to OzEmail's closing ADS price Friday of US$20 7/8. ''The Asia-Pacific region is of key strategic importance to us and the synergies between OzEmail and MCI WorldCom are clear,'' said MCI WorldCom vice chairman John Sidgmore. MCI WorldCom unit UUNET Holdings Pty will undertake the bid.
Internet use is exploding in Australia. The number of households that accessed the Internet in the six months to August jumped 46 percent to 1.24 million, amounting to 18 percent of the population. OzEmail says the volume of electronic mail it processes for its subscribers has doubled in the past 90 days.
Last month Sidgmore told an audience at the Comdex trade show in Las Vegas that MCI Worldcom has ''bet the ranch on the Internet''.
MCI's UUNET WorldCom offers Internet services to more than 70,000 businesses and Internet services providers in more than 76 countries, though its bid for OzEmail will be its first acquisition of an ISP in the Asia-Pacific region. For OzEmail it provides access to MCI WorldCom's international network and new technologies.
Taking Advantage ''I think it will give us a tremendous advantage over the domestic players that we're competing with,'' said OzEmail founder and Chief Executive Sean Howard. Takeover talk has followed Sydney-based OzEmail since October, though the company's still making losses after customer numbers doubled in the past year to about 250,000. Only Telstra Corp., Australia's largest phone company, has a comparable number of Internet customers.
Still, Telstra made a profit of A$3 billion in 1998, while OzEmail reported an A$11.2 million loss in the first nine months of 1998. Also, OzEmail was forced to cancel a US$250 million equity and debt offer earlier this year, stalling its expansion into the telecommunications market.
The offer's about equal to A$3.54 per share for OzEmail's Australian-traded stock which closed Friday at A$3.39 and opened at A$3.55 after the bid was announced Monday.
Price To Pay
The offer's priced at a premium of about 50 percent to the weighted average trading price of OzEmail's Nasdaq-traded shares over the previous three months. Not everyone is sure that's a good deal. ''I'd be very surprised if the company changed hands at this price,'' said Adam Spowers, telecommunications analyst at HSBC Australia Ltd. ''It's only a 1.7 percent premium to Friday's closing price.''
The bid likely quashes talk America Online Inc. would acquire OzEmail. Analysts said AOL, the world's largest online service, will struggle to gain subscribers after entering the Australian market in October "They (AOL) might do a counter-bid, but I doubt it because MCI has the acceptance of the directors," said Paul Zaman, a telecommunications analyst at broker JB Were & Son. ''It certainly makes it more difficult to make an entry here.''
Zaman also said investors are likely to approve the MCI WorldCom bid because it has management backing. Three directors who together hold 54 percent of OzEmail, Howard, Chairman Malcolm Turnbull and Trevor Kennedy, a director, said they plan to accept the offer.
MCI WorldCom's acquisition of shares reduces their control to 46 percent of OzEmail, leaving Howard with 23 percent. If the MCI WorldCom bid succeeds, Howard will reap A$120 million.
Doubling Your Money
''I think the offer is attractively priced,'' said Turnbull. ''The stock has been moving up recently in response to a number of factors, including takeover speculation.''
OzEmail shares have doubled in value since early October when talk of a possible takeover bid first started.
Meantime, OzEmail's costs will likely plunge if it ties up with MCI WorldCom, especially for hauling traffic from inside the U.S. to the West Coast of that country. ''It will significantly reduce their international transmission costs,'' HSBC's Spowers said. ''It makes them hugely competitive and the one to beat in this market.''
Howard founded the company in 1994 with a staff of 7 -- now 700 -- and plans to rapidly expand OzEmail into electronic commerce, telephony and business data services. ''We really believe we are seeing convergence in the telecommunications market. We have to be able to offer data and voice services,'' said Howard.
Looking For Opportunities
OzEmail, though, only had A$20 million in cash and was restrained from rapid expansion of its networks. Now it has an immediate payment of US$43 million from MCI WorldCom, said Howard, which puts the company in ''an excellent position''.
Instead of building expensive cable networks, Howard said the company is examining the deployment of broadband wireless networks, while it may also link with other companies to build long-distance fiber networks down the east coast of Australia, where 60 percent of the population lives. ''It would be inappropriate in most cases for us to go it alone,'' Howard said. ''It's better to form partnerships with others who want to offer complementary services such as pay- TV.''
Goldman Sachs, Wall Street's richest partnership, is advising OzEmail. OzEmail's Turnbull is a partner and chairman of the Goldman's Australian operations. Merrill Lynch & Co, the largest U.S. broker, is acting for MCI WorldCom. |
