If you’re in the USA you probably think that title has a typo, but AAPT is the #3 telecom in Australia, and a subsidiary of Telecom New Zealand. The company runs a network having some 89 PoPs in Australia and has capacity on various cables from there to the world. According to various reports Pacnet has bid some $420M for it, although it remains unclear just how solid the basis is for those reports.
Pacnet has become increasingly aggressive since being constructed from the pieces of Asia Netcom and other assets in the region. Those assets remain focused on Asia, although they have some facilities and customers outside its main region. Interest in AAPT demonstrates that Pacnet is not content in its niche, expansion is the order of the day. And a presence down under would be a natural step in that process.
Yet I think such a deal is likely more rumor than fact, even it is based in reality it could just be a trial balloon. For one thing, it is unclear just where the money would come from. Are Pacnet’s private equity owners chipping in more cash? Or are they offering an equity stake in advance of the IPO they are rumored to be planning when the market becomes more favorable? I suppose we won’t know until this report progresses beyond the rumor stage. If it does happen, it would show that telecom consolidation is not unthinkable in this environment. But I’ll believe it when I see it.
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Categories: Mergers and Acquisitions · Undersea cables
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If anyone has watched the fate of Pacific Internet since it was acquired by the former Asia Global Crossing you will see a pattern of savage job cuts, spectacular management departures and overall discontent. In one instance the merger was handled so badly that the joint venture partner in Philippines simply withdrew all association with PacNet and ran the company independently.
The modus operandi is simple – buy a distressed asset, cut jobs and investments and move as many assets and positions as possible offshore.
The bigger question is where are they getting the cash ? If Telecom is getting equity for the deal then this could be worthless unless the proposed IPO hits top dollar. In an equity sale Telcom is essentially lending PacNet money to buy the asset from them.
Pacific Internet was once a proud institution and was growing in all segments and markets .. it is now an afterthought. Lessons to be learnt for AAPT.
Yes, I did hear that there was a fair amount of ugliness internally last year. Would you say things have gotten any better since?
I expect from the content of the message above that the William Barney isn’t the same Bill Barney who’s the PacNet CEO.
This rumour had me scratching my head too Rob. Quite simply, if I had a spare $400M I wouldn’t be using it to buy AAPT. It’s an OK company, as far as it goes, but it’s not a stellar performer and the Australian market just isn’t that big. Whilst there would be some synergies for PacNet as an Asian operator (with a moderate invstory of AJC and Southern Cross capacity, it’s not necessarily compelling, as Australian companies mainly operate … in Australia, leaving Telstra well-placed to dominate its neck of the woods and come down hard on any smaller operators with growth aspirations. AAPT just isn’t worth that much too PacNet.
The heart of the problem though isn’t about how PacNet values AAPT. It’s about how PacNet values itself: overly.
PacNet is doing some OK things and in my view are positioning themselves in an intelligent way.
But they also suffer the common fate of telcos that are owned by private equity investors: a fundamental, unshakeable belief that the assets are worth way more than they bought them for. The fact is that PacNet owns some OK assets with a shelf life: they remain primarily a wholesaler with one mediocure system (C2C, with limited connectivity due to bad partnerships), and one good one that they don’t maintain well enough (EAC) and which will soon lose its monopoly status on the key Hong Kong – Singapore route and its strong position in the Hong Kong – Japan route. But if you are a private equity investor, you are very susceptible to senior management telling you that the future’s great. PacNet’s namesake, Pacific Crossing, is in a similar (and much worse)position. These assets are all quitre rapidly declining in value, but are being valued internally at laughably high amounts.
Don’t get me wrong, PacNet is not a basket case and they could be a potential acquirer of Asian assets. But I would hazard a guess that Ashmore’s Option A is to be an acquiree … but just can’t understand the enormous gap between their estimation of their own worth, and the markets.
Just to keep this blog up to date … here is an intersting article from a New Zealand national newspaper this week:
Telecom chief executive Paul Reynolds said suggestions Asian telco Pacnet might acquire Telecom’s Australian subsidiary AAPT should be taken with a pinch of salt.
Pacnet chief executive Bill Barney said Pacnet was interested in acquiring AAPT, but felt the valuation of Australia’s No3 phone company had come down since December, when it reportedly offered A$420 million (NZ$520m) for the company.
Mr Reynolds told The Dominion Post no offer had been made for AAPT.
“Pacnet are trying to buy telcos on four continents, yet no-one has ever heard of them.”