Telecom wants control of big Aussie carrier

By Brian Fallow

WELLINGTON - Telecom has launched a bid for Australia's third-largest telecommunications carrier, AAPT - pitched at a price it hopes will give it control but without the debt burden 100 per cent ownership would incur.

Telecom's offer price of $A5.10 a share values AAPT at $A1.5 billion ($NZ1.85 billion). Since May Telecom has acquired 19.8 per cent of the company at an average entry price around $5.35.

Although its offer is for all the shares it does not already own, in deference to Australian takeover law Telecom has made it clear that it does not want all of them.

Chief executive Roderick Deane said Telecom's aim was to keep AAPT as a listed company. "We would like to maintain a widely held register with institutional and smaller investors accounting for a substantial proportion of the shares on issue."

The $5.10 price represents a 5 per cent premium to the share price at the end of last month, before speculation about Telecom's intentions pushed it to the $5.10 to 5.17 range.

Analysts said one question was whether the offer was high enough to tempt AAP Communications Holdings (effectively the Australian media groups Fairfax and News Corp) to part with its 17.3 per cent stake, and another was whether Telecom would care if it did not.

The other major shareholder, Cable & Wireless Optus with 10.6 per cent, has declined to comment until it has received and considered the offer.

But Optus is widely assumed to be a seller since its own plans to take over AAPT were stymied by Australia's competition watchdog the ACCC, and its entry price was around $4.85.

Under Australian law, if the price is increased early acceptors will get the benefit as well.

After the bid was announced, ratings agency Standard and Poor's put Telecom's long-term debt on negative credit watch.

While it could see strategic merit in the move, S&P said a debt-funded acquisition of less than 100 per cent of AAPT could have a material impact on Telecom's "very prudent" finances.

S&P believes Telecom's target is a stake in the 40 to 50 per cent range - a level Telecom has previously mentioned.

Assuming it ended up with 50 per cent and could consolidate AAPT in its accounts, interest cover would decline to seven times from 9.1 times in the latest June year, S&P said. The ratio of consolidated funds from operations to total debt would deteriorate from 52 per cent to something in the 40 to 45 per cent range.

AAPT declined to comment on the bid until its board, which meets this morning, has considered it.

Dr Deane said the relationship would enhance the global competitiveness of both parties and result in a number of operational synergies, including joint management of Australia-NZ voice traffic, more efficient use of bandwidth, leveraging off common systems, knowledge sharing and joint buying power and joint internet development.

AAPT shares closed 2c lower at $5.13. Telecom fell 14c to $8.10 but Credit Suisse First Boston broker David Price said he did not blame the fall on the AAPT bid, which he thought was a smart one.