NTT Sees Writing on Wall in Japan, Goes Abroad for Growth
<<NTT to Buy 15% of PLDT in Step Toward Asian Network
By Junko Fujita at Bloomberg News
04 June 1999 <
Nippon Telegraph & Telephone Corp., the world's largest phone company by sales, said it's buying 15% of Philippine Long Distance Telephone Co. for $758 million, a step that may lead to creation of an Asia- wide network.
The move is part of a larger four-company deal which will make Smart Communications Inc., the largest mobile-phone company in the Philippines, a fully owned subsidiary of PLDT, the largest fixed-line phone service provider. The union, expected for months, will create a company controlling three-fourths of the nation's phone market.
Analysts say it may also be the first step by NTT, Japan's former domestic phone monopoly, to create an Asian-wide telecommunications network. NTT is branching out internationally following the lifting of a government ban on it operating abroad. NTT already owns stakes in several Asian carriers, including Thai Telephone & Telecommunications Plc and StarHub Pte of Singapore. Analysts expect NTT may eventually connect all those systems to create an Asian network.
"We are seeking more investment opportunities in Asia," said Masanobu Suzuki, an NTT executive vice president. The Philippines is the fourth-largest destination for outgoing overseas calls from Japan, and Japan is the second-largest market for overseas calls from the Philippines, Suzuki said.
Analysts said the deal will also transform PLDT into a formidable regional telecommunications company.
"It (the deal) should send shivers down the backs of other players in the industry," said Dipak Jethwa, senior analyst at OCBC Securities Philippines Inc. PLDT will benefit from access to NTT's technology, he said. PLDT's balance sheet will also be strengthened by the 14.7 billion yen ($121 million) in capital NTT is paying for 12.2 million new shares. Standard & Poor's Corp. had warned it may downgrade the Philippine phone company's credit rating without a capital infusion.
NTT said it will pay altogether 87.5 billion yen in cash and stock for the stake in the Philippines' largest phone company. NTT said it will swap its 37% stake in Smart Communications for new shares in PLDT, and will buy other newly issued shares.
First Pacific Company Ltd., a Hong Kong-listed investment and management company, today also said it's swapping its entire stake in Smart Communications under similar terms. It said the transaction, which it valued at US$562 million, will make it the largest PLDT shareholder, by boosting its stake to 23% from 17.2%.
The entire deal values Smart Communications at US$998 million, First Pacific said. That's up from $945 million just over two months ago, the valuation reflected by the amount NTT paid - $214 million - to double its stake to 37%.
Smart Communications has 850,000 cell phone subscribers. PLDT has 1.6 million fixed line subscribers.
Speaking at a press conference in Tokyo, PLDT President Manuel Pangilinan said Pilipino Telephone Corp., the Philippines second-largest cell phone provider, may also be absorbed eventually. PLDT already owns 58% of Piltel, which has 420,000 subscribers.
First Pacific said the four companies involved in the current deal have signed a non-binding memorandum of understanding. It said final approval is expected by the end of the year after the deal is approved by the boards of NTT, PLDT, First Pacific and Metro Pacific Corp., 84% owned by First Pacific.
According to the agreements, NTT will receive 13.1 million new PLDT shares in exchange for its stake in Smart Communication. Those new shares will be issued at 1,080 pesos apiece, a 2 percent premium to PLDT closing share price last Friday. NTT will also pay 14.7 billion yen for another 12.2 million new PLDT shares, or 1,202 pesos apiece. That's a 12.3% premium to their closing price last Friday.
First Pacific will receive 6.3 million new PLDT shares for its 18% stake in Smart Communication, and Metro Pacific will get 13.4 new PLDT shares for its 38.3% holding.
First Pacific's managing director Thomas Yasuda said in a statement that the agreement furthered the company's "strategy of focusing on fewer, bigger businesses."
He also said PLDT and Smart Communications combined added up to more than the sum of their pieces. The deal "ensures that PLDT can develop into one of the region's leading telecom groups and benefit from the converge that will take place between fixed- line and cellular technology."
First Pacific is being advised by ING Barings, PLDT by ABN AMRO, and NTT by Credit Suisse First Boston.
NTT shares closed at 1.22 million yen, up 30,000. PLDT's shares fell 10 pesos to 1,055. First Pacific's shares closed unchanged at HK$6.20. The announcement came after the markets closed.
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