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Telecom said today it was making a A$2.30 ($2.60) per share takeover bid for Australia's PowerTel Ltd, a move which had been agreed by the PowerTel board.
The bid values PowerTel at approximately A$357 million including net debt. The proposal involves Telecom paying cash by way of a
scheme of arrangement.
Telecom has also taken an option agreement to buy 10 per cent of PowerTel's shares on issue from TVG (PowerTel's major shareholder) at a strike price of A$2.30 per share.
"This acquisition brings two strongly complementary businesses together and is a step towards the consolidation of the Australian telecommunications industry," said Marko Bogoievski, Telecom chief financial officer.
"It provides significant benefits to Telecom by enabling AAPT to leverage its investment in service capability and it gives us the scope over time to bring more of our customers onto the combined access network rather than servicing them through wholesale arrangements.
"This is a very positive step for the development of our Australian business," Mr Bogoievski said.
Telecom has had no end of trouble with its AAPT business, spending over $2.3 billion on it since it began investing in it in 2000 and writing almost all of that off due to its lack of profitability.
Investors signalled their disapproval of the deal, selling Telecom shares down 12 cents to $4.95.
After adjusting for the company's shareholdings in Macquarie Telecom and iiNet, the price reflected Telecom was paying 7.9 times earnings before interest, tax, depreciation and amortisation, based on projected earnings of A$42m for 2007.
The offer price represents a 31.2 per cent premium to the volume weighted average price over the last three months and a 18.7 per cent premium to PowerTel's volume weighted average share price over the last 30 days, Telecom said.
"The offer represents full value for PowerTel and reflects the underlying improvement in PowerTel's earnings performance and the operating and strategic benefits available from bringing the two companies together," Mr Bogoievski said.
Telecom expected the purchase to be earnings per share positive within 12 to 18 months.
The acquisition will be funded by a combination of cash and Telecom's existing debt facilities.
The transaction is subject to certain conditions, including shareholder and regulatory approval.
Documents will be sent to PowerTel shareholders by late March and PowerTel shareholders will have the opportunity to vote on the scheme in late April.
PowerTel managing director Paul Broad said Telecom's was the best offer "by miles" of several approaches.
"We've had approaches, we haven't been short of dancing partners," Mr Broad told Reuters.
"We have looked at all other options and this is the best offer for our shareholders and our company," Mr Broad said.
- NZPA, additional reporting by Reuters