Light offer leaves rich prize in balance

By Richard Braddell

Between the lines

Opportunistic and ungenerous. Until yesterday's rejection by AAPT's board, those were the worst charges Australian media and fund managers could level against Telecom's AAPT bid.

But far be it for a business, even a big one, to pay more than it has to. The question is whether Telecom's parsimonious ways will serve it ill, since it only wants at most 40 to 50 per cent of the company.

Telecom's reluctance to absorb the entire company lies in the valuation issues that have dogged its internet service provider, Xtra, whose worth remains a matter of conjecture since there is no free market for its shares. The same applies to the Southern Cross cable which could be worth several billion dollars but is unlikely to be fully reflected in Telecom's share price.

But keeping AAPT as a separately listed Australian associate has another key advantage, Telecom's chief financial officer, Jeff White, observes. Managing a new entrant to the market calls for a totally different culture from that of an incumbent. And with speculation that he may be AAPT's new CEO when Larry Williams quits, Mr White might also have a personal incentive to maintain AAPT's distance.

But if the offer is light, then the market does not think it is greatly so. As Mr White observes, since Telecom took its 20 percent stake at prices up to $A5.70, AAPT's price has languished below $A4.90, until hitting $A5.13 on recent speculation that Telecom was about to bid.

In rejecting Telecom's $A5.10 bid yesterday, AAPT steered well clear of suggesting it was hostile or that relations were otherwise anything but good with Telecom. Nor was there any rush to endorse a previous Grant Samuel valuation of between $A6.04-7.01 which is now to be revised.

AAPT has good reason to like Telecom. Unlike the rejected C&W Optus bid, Telecom's entry would not result in AAPT's disappearance.

But that fact makes matters no easier for AAPT's two other major shareholders, C&W Optus and AAPIS who between them control 27 per cent.

Given the apparent failure of negotiations that might have produced an ownership restructuring acceptable to AAPT's board, it is unlikely they are happy with the bid price. But there is little to suggest they will get better in the short-term.

For Telecom, the worst that can happen is that it either ends up short of its 40 per cent target or with more than 50 per cent, depending on the behaviour of those two major shareholders.

How far short it might fall is another issue. Mr White suggests bravely that it doesn't really matter. But with some juicy assets, including mobile prospects that will fit nicely beside Telecom's own network business, he must want enough to cement control.