Verizon sells out for $1.6b

By PETER GRIFFIN and PAUL PANCKHURST

In one of New Zealand's biggest share deals Telecom's cornerstone shareholder Verizon has sold down its 20.9 per cent stake for more than $1.6 billion.

Verizon yesterday told the market it had reduced its stake in Telecom to 1 per cent, selling 370 million shares to US investment bank Merrill Lynch, Pierce, Fenner & Smith for about $4.35 a share.

At that price, the deal went through at a 9.75 per cent discount to Telecom's closing share price of $4.82.

Analysts said Telecom's share price was likely to slump today as the market digested the discounted sale.

However, the head of research for Macquarie Equities, David Stanley, said the average private investor "should not worry".

Brokers said the share had been under-priced and its long-term prospects were good.

Macquarie Equities senior investment analyst Arthur Lim said Verizon had done well out of its New Zealand investment, but could have made a killing if it had sold out in the mid-nineties when Telecom's share price was substantially higher.

"They've made about $1.30 per share and they've had fantastic dividend payments since they bought in. But they haven't done as well as their US brother Ameritech."

Telecom's general manager of finance, Philip King, said Verizon, a Telecom shareholder for 12 years, had been a passive investor since 1998 without directors on the Telecom board. Telecom was not losing a strategic partner.

"It was an opportunistic acquisition for Verizon [to buy into Telecom] when they were starting to spread their wings but they really haven't built on their investments in this part of the world."

King said there did not appear to be a single investor interested in buying the stake and it was likely to be an even spread of international investors buying the shares from Merrill Lynch.

"The New Zealand fund managers already own a lot of Telecom so their capacity to take significant shares would be limited," he said, adding that it was unlikely Verizon's exit was a reflection on Telecom's performance.

Analysts said they expected the investment bank to sell the shares for between $4.45 and $4.55.

Merrill Lynch was selling the stock around the world last night, while broking firm ABN Amro was selling to New Zealand institutions.

JBWere broker Humphrey Sherratt called it "the biggest sell-down New Zealand has seen, without a doubt".

He said: "The market's been waiting for this for quite some time and I think, once it's complete, it's going to be very positive for the stock. It takes away a very obvious overhang."

The move confirms rumours of a sell-down that have been swirling around Verizon all year, despite repeated claims from Verizon that it wanted to reduce its stake to below the 20 per cent mark in small chunks.

The rumours sprang up again with renewed vigour two weeks ago after ratings agencies Standard & Poor's and Moody's threatened to cut Verizon's long-term debt credit rating, citing its US$60 billion ($128 billion) debt as a "significant source of concern".

Verizon also told the market that it had sold 11.4 million Telecom shares in the first four months of the year.

Analysts expect Telecom to trade at between $4.60 and $4.75 today.