Verizon's Telecom stake sold for $4.50/share

10.40am

Merill Lynch has successfully completed the sale of Verizon's 20.5 per cent of Telecom.

Telecom said today it understood the sale through a bookbuilding exercise had gone through at $4.50 per share, a 6.6 per cent discount on yesterday's closing price.

"We understand the price was $4.50 (per share)," Telecom finance manager Philp King told NZPA today.

"We understand that it was strongly oversubcribed and reasonably widely distributed -- to New Zealand, UK, Australia and the US," Mr King said.

He said Telecom understood one or two institutions were cornerstone holders who stepped up for a sizeable portion the deal.

"We haven't been advised of any names or details. We will be waiting to see if there are any substantial security holder notices placed to see if anyone bought 5 per cent or more."

Mr King said it was typical that such sales went through at a discount.

'Once the market settles down, that overhang is gone. That's got to be positive. A number of brokers have told us that they felt there was a 30-50 cent overhang because of Verizon's stake hovering out there."

The move, one of New Zealand's biggest share deals, saw US cornerstone shareholder Verizon divesting 20.5 per cent of its Telecom stake for more than $1.6 billion. It retains 1 per cent.

Verizon sold the 370 million shares to US investment bank Merrill Lynch, Pierce, Fenner & Smith for about $4.35 a share -- a 9.75 per cent discount to Telecom's closing share price of $4.82.

Verizon declined to comment "at this stage".

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

In America, Telecom ADRs (American Depository Receipts) dropped 4.27 per cent overnight, closing at US$17.47 ($37.50) for a bundle of eight ordinary shares.

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."

Mr 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."

"The New Zealand fund managers already own a lot of Telecom so their capacity to take significant shares would be limited," Mr King 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.

While Merrill Lynch sold the stock around the world last night, 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 ($128.81 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.

Telecom's shares opened just 7 cents down at $4.75 when the local market opened and they quickly rebounded to $4.80, only two cents down.

The turnover volume was a massive 712 million, worth $1.67 billion.

The NZSE-40 Capital Index fell 3.30 points to 1987.21 in the first five minutes of trading.

Mr King estimated that virtually all the $1.6 billion received for the sale was profit. Because of dividends and capital returns it was hard to relate today's price to the original, but Mr King estimates that Verizon, formerly Bell Atlantic, would have pretty much had all of its original return in the form of dividends and capital return.

"Pretty much what they got today was almost all profit."

Bell Atlantic and Ameritech bought all the company from the Government in 1990 for $4.25 billion. They were required by the Government to sell down to under half. They floated a third of the company in 1991 at $2.00 per share and later sold down a quarter stake each.

- NZPA