Telecom sits pretty in Hutchison deal

By RICHARD BRADDELL utilities writer

Telecom has gained pre-emptive rights over the controlling stake in its Australian third-generation mobile joint-venture partner, Hutchison Telecommunications (Australia).

Hutchison Australia has a second-generation mobile telephone business and, in partnership with Telecom, plans to set up a third generation mobile firm - H3G.

Telecom will hold 19.9 per cent of the venture. The balance will be controlled by Hutchison Australia and its 57.8 per cent Hong Kong parent, Hutchison Whampoa.

The deal, into which Telecom will inject $A400 million ($494.6 million), has been questioned by analysts.

They are concerned that much of the Hutchison equity in the $A1.9 billion partnership derives from the $A900 million Hutchison paid for spectrum licences that may now be worth a lot less.

But it also opens the way for Telecom to increase its Australian interests should Hutchison Whampoa reduce its stake.

Under the agreement, Hutchison Whampoa cannot accept an offer for Hutchison Australia that would reduce its stake below 40 per cent, unless a corresponding offer is made to all shareholders.

Nor can it accept an offer unless Telecom gets first opportunity to make a competing offer.

In a series of standstill agreements, revealed in a substantial security holder notice filed with the Australian Stock Exchange, Hutchison Whampoa is prevented from reducing its beneficial stake in Hutchison Australia below 50.1 per cent for 18 months after the launch of H3G.

And it can reduce to 40 per cent only if there is an issue of new capital.

It must not allow third parties to accumulate a greater holding than it has itself.