Telecom sails off in $140m deals

BY TIM HUNTER

Telecom's A$140 million of asset sales this week got a generally positive reception from investors as its shares touched the $2 mark for the first time since May.

Analyst Guy Hallwright, of Forsyth Barr, highlighted the sale of Australian unit AAPT's consumer business as a good outcome.

"The consumer business was always going to be the toughest" to sell. For the rest [of AAPT], it doesn't really matter a lot whether they sell it or not. It actually has some pretty useful assets in it, even though they're basically saying it's not core.

"I don't think they're under pressure to move on the rest."

Yesterday Telecom announced it had sold the consumer business of AAPT to Australian rival iiNet for A$60m ($75m). The sale had followed a formal sale process in which all of AAPT was on the block.

In separate transactions, the company's minority stakes in iiNet and Macquarie Telecom were sold for A$70m and A$9.9m respectively.

Telecom chief executive Paul Reynolds said: "Together these transactions rationalise non-core assets, strengthen Telecom's financial position, and help reposition AAPT's operations into a focused, network-centric wholesale and corporate business that is well-positioned for future growth."

A Telecom spokesman said the company was now "taking stock".

"We're happy with the transactions we've made. That's not to say if a good offer [for the rest of the business] was put in front of us we wouldn't look at it seriously. But having done these transactions, which we're pleased with, we'll take stock."

Telecom said the AAPT deal would reduce the Australian company's forecast earnings by about A$10m – indicating, based on this year's figures, it could generate earnings in 2011 of about A$90m.

Mr Hallwright said the book value for all of AAPT was about A$400m to A$450m.

"For what's left, could you sell it for A$300m? For something that's earning ebitda of just under A$100m? I wouldn't have thought it was that difficult.

"The bit that really wasn't earning its keep was the consumer business and that's gone now."

As for potential buyers, "probably it's watch this space," he said.

"There may be conditionality – iiNet has to go through approvals before the deal gets consummated, so it's possible there are people waiting in the wings for the rest of it.

"Pacnet was being commented on as a potential buyer and I always thought that wasn't very sensible because I couldn't see why on earth they'd want the consumer part of the business. But now the consumer part has been taken out they could be interested again."

iiNet said it expected the acquisition to boost earnings by A$20m in the first full year.

AAPT's 113,000 broadband subscribers and 251,000 other connections would bring its broadband customers to 652,000 and total active services to 1.3 million, it said.

iiNet will continue to buy wholesale services from AAPT, which retains a substantial fibre network and a corporate telco business. The transaction requires approval of iiNet shareholders.

- © Fairfax NZ News