KEY POINTS:
The following is the text of a letter sent by Elliott International L.P. to all Telecom shareholders:
"September 18, 2008
Dear Fellow Telecom New Zealand Shareholder,
The forthcoming October 2 Annual General Meeting of Telecom Corporation of New Zealand will provide shareholders with the chance to vote for four board members: shareholder nominees Mark Tume and Mark Cross, as well as Rod McGeoch and Kevin Roberts. We strongly believe that VOTING FOR the two new, local independent candidates, Mark Tume and Mark Cross, is the first step to improving the Company's current state of affairs and restoring shareholder value.
As a Telecom shareholder, Elliott International, L.P. sees significant value at Telecom. However, the Company is facing challenges on a number of fronts - its share price has declined to a 15 year low and its profits are expected to fall over the next two years.
In this situation, Telecom must make serious changes to improve its performance and we believe this change should start at the Board. That is why, after an extensive and vigorous search, we nominated Mr Tume and Mr Cross for appointment at the October 2 AGM.
The current size of the Board at 7 members - out of a maximum of 12 - is relatively small for a company of the size and strategic importance of Telecom. Appointing directors with financial and investment experience will add capacity and depth to the Board at a time when those qualities are much needed. Our nominees are seasoned experts who understand investor issues and will help create an energetic and cooperative environment between the board and its shareholders.
The NZSX Listing Rules specifically allow for shareholders to nominate directors at an annual general meeting, in order to encourage mixed boards constituted by both shareholder and board backed directors. At Telecom's forthcoming AGM, shareholders do not even need to choose between the shareholder and board backed director nominees. All four directors can be voted onto the Telecom board (resulting in a nine member board), but a nominee must receive a majority (at least 50.1 per cent) of the votes cast at the AGM to win appointment to the Board so your vote is critical.
The appointment of Mr Tume and Mr Cross can only add value and independence to the Board - there is no downside.
YOU CAN MAKE A DIFFERENCE - PLEASE VOTE FOR THE APPOINTMENT OF MARK TUME AND MARK CROSS TODAY!
Please vote for Mr Tume and Mr Cross by signing, dating and returning the enclosed proxy form with a vote FOR the appointment of Mark Cross (Item 3) and Mark Tume (Item 4).
You can also complete a proxy form online by going to: www.telecom.co.nz/investorcentre. You will need your shareholder number and FIN number to do this. If you do not have a FIN number, please contact Computershare at: enquiry@computershare.co.nz or 0800 737 100 (NZ toll free) or +64-9-488 8777. You can also lodge your Proxy via fax to +64-9-488 8787.
It is important that you vote as soon as possible since your executed proxy form must be received by Computershare Investor Services by 10.00am (New Zealand time) on Tuesday 30 September 2008.
Even if you have already voted against the election of Mark Tume or Mark Cross, you have every right to change your mind. Only your latest dated voting instruction counts.
THE COMPANY'S PERFORMANCE
" Telecom's share price is at a 15-year low.
" Telecom's EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), the basic measure of profitability, has declined at an average rate of
5 per cent over the past four years, despite steady revenue growth.
" Telecom has lost almost 15 per cent of its retail market share on its own network over the past five years.
" Telecom's share of the overall mobile market has declined from almost 57 per cent to 47.5 per cent since 2001 (assuming a two player market with Vodafone).
" Telecom's financial results have underperformed compared to its Australian peers, Telstra and Optus, over the past four years.
" The Company admits profits will fall over the next two years.
" Telecom has become one of the lowest valued integrated telecom companies in the world.
A STRONGER BOARD WILL HELP
Telecom needs change if it is to improve its situation. That change can only start by strengthening the current Board, which desperately needs:
" A more complete skill set, particularly financial expertise.
" Fresh perspectives and a more investor-friendly focus.
" Directors based in New Zealand who can devote more time to Telecom (once Patsy Reddy retires, Chairman Wayne Boyd and CEO Paul Reynolds will be the only directors that have a registered address in New Zealand).
Mark Tume and Mark Cross will only bring beneficial change to the Board:
" They will complement its skill set by providing years of financial and investment experience and commercial acumen.
" They will provide new energy.
" As local residents, they will be physically present in New Zealand to assist Mr Reynolds through Telecom's tough times.
" Given their understanding of investor issues, they will re-focus the Board's attention on shareholder issues.
" They are independent of Elliott and will represent the interests of all shareholders.
MARK TUME AND MARK CROSS - BIOGRAPHIES
MARK TUME
Mark Tume has had a 20-year career working in the New Zealand banking and funds management industries, and is a former president of the NZ Financial Markets Association.
He was previously Head of Funds Management at the Bank of New Zealand and has held a number of senior roles within the finance industry specialising in investment, asset and liability management, capital markets and risk.
Mark is a professional director and currently holds a number of directorships with listed and unlisted companies, including Infratil, Transpower New Zealand Limited, New Zealand Refining Company, and Ngai Tahu Holdings Corporation. As a member of Transpower's board, he has a strong understanding of the issues associated with Transpower's evolution from self-regulation to the current regulatory environment. He is also a member of the board of the Guardians of The New Zealand Superannuation Fund. He holds a Bachelor of Business Studies and a Diploma of Banking (Treasury Studies) from Massey University.
MARK CROSS
Mark Cross, currently a resident of Auckland, has 20 years experience in the financial sector both in New Zealand and overseas. He most recently worked for Deutsche Bank for the last twelve years, including serving as co-head of the European natural resources mergers and acquisitions team, and co-leading a large team of bankers in the regulated utilities and energy sector.
He has led a number of significant transactions, working closely with both unlisted and public companies on M&A transactions and across debt and equity capital markets. He has a comprehensive understanding of utility regulation and investor perspectives on utility valuation.
Prior to Deutsche Bank, Mark held senior positions with Lloyds Bank (Australia) and Southpac (NZ). His investment banking background has given him extensive commercial experience and insight as an advisor to boards and senior management teams on strategic and financial issues. Mark holds a Bachelor of Business Studies in Accounting and Finance from Massey University, and is a qualified chartered accountant.
THE APPOINTMENT OF MARK TUME AND MARK CROSS CAN ONLY ADD VALUE TO THE BOARD - THERE IS NO DOWNSIDE
PLEASE VOTE TODAY FOR THE APPOINTMENT OF MARK CROSS AND MARK TUME SO THAT YOUR INSTRUCTIONS ARE RECEIVED BY COMPUTERSHARE INVESTOR SERVICES BY 10.00AM (NEW ZEALAND TIME) ON TUESDAY 30 SEPTEMBER 2008.
You can also complete a proxy form online by going to: www.telecom.co.nz/investorcentre. You will need your shareholder number and FIN number to do this. If you do not have a FIN number, please contact Computershare at: enquiry@computershare.co.nz or 0800 737 100 (NZ toll free) or +64-9-488 8777. You can also lodge your proxy via fax to +64-9-488 8787.
For additional information regarding our nominees and how to vote at the October 2 AGM, please visit our website, New Directions Telecom, www.newdirectionstelecom.co.nz. If you need assistance voting your shares, please contact the Elliott International Information Line for Telecom New Zealand shareholders at 0800 540 005 in New Zealand; 1800 727 617 in Australia, and +61 2 8256 3393 for all other overseas callers.
Thank you for your support,
Elliott International, L.P.
About Elliott
Elliott International, L.P is a shareholder in Telecom. Founded in 1977, Elliott International, together with funds under common management ("Elliott"), is one of the oldest private investment firms in the United States under continuous management and has an outstanding track record. The firm has a history of working with management teams, regulatory bodies and shareholder groups to deal with complex issues and achieve mutually beneficial results. Elliott has been involved in both regulatory processes and corporate restructurings related to telecommunications companies around the world."
