KEY POINTS:
Telecom's share price surged to a post-unbundling high of $4.93 yesterday after speculation that Yellow Pages will post a 13 per cent revenue growth this year.
Telecom's adviser, Goldman Sachs JBWere, put out a note to potential buyers that said Yellow Pages revenue was expected to reach $280
million in the year to June.
It expected Yellow Pages to deliver earnings before interest, tax, depreciation and amortisation in excess of $160 million this year.
Telecom's share price has risen from $4.70 to $4.93 in the past two days, but closed yesterday back slightly at $4.85.
Walker Capital Management principal Craig Brown said Telecom's growth estimates were a bit higher than market consensus, which boosted the share price.
"That could go some way to explaining why the share price is a bit higher, because they are fairly high growth rates."
Brown expected the share price to remain reasonably static until Telecom delivered more information on the Yellow Pages sale.
"The key issue will be to see how Yellow Pages is structured," he said.
Telecom has said it would expect to have a full continuing commercial arrangement with Yellow Pages.
Analysts had said the Yellow Pages Group - which includes the online and printed versions of the Yellow and White Pages - could fetch up to $2 billion. Yellow Pages was expected to attract bids from international private equity funds that have been buying up directories businesses recently.
Waddell Johnston McCarthy managing principal Ian Waddell said the Yellow Pages sale was focused on short-term high returns for shareholders and Telecom could potentially "sell a crown jewel".
Waddell estimated that Telecom would deliver earnings before interest, tax, depreciation and amortisation of $2.3 billion for the year to June 2007 - with Yellow Pages making up 10 per cent - and $782 million in net profit.
"It is quite a big amount. Everyone is getting excited that they are selling at a higher price, but are they selling one of the crown jewels just because they feel they can get a re-rating on their stock?"
Telecommunications analyst Paul Budde said he questioned Telecom's wisdom in selling off a potentially major digital media asset.
Telecom would deliver more value to shareholders by creating a separate digital media company, he said.
"By selling Yellow Pages it cuts it off from that particular development. They missed Trade Me, and Yellow Pages is the second sort of situation.
"Whatever Telecom is saying, it is going to move into being just an infrastructure company."
Toughest job in New Zealand?
Spare a thought for Stephen Crombie - he may have just landed the toughest job in New Zealand this year.
Crombie will head up the enormous task of splitting Telecom business into three business units as required by legislation passed last year.
The Telecommunications Amendment Bill - which forces Telecom to open its network to competitors - was passed under urgency in the last sitting days of Parliament. Under the bill, Telecom is required to split its operations into three separate groups: network access, wholesale and retail.
Crombie, the former general manager of technology, has been appointed general manager of undertakings for the separation.
Minister of Communications David Cunliffe said the operational separation of Telecom should be completed by the middle of 2007. An initial plan for the separation is due next month.