John Linton
Doubtless everybody other than me has worked out what symbiosis is being planned by TPG/Pipe given the simultaneous requests for suspension of trading in their shares by to the ASX last Tuesday. As TPG not so long ago bought its own Southern Cross access the obvious statements that TPG was looking to reduce its international IP costs make no sense to me. I think Steve was more likely to be on the money with his comment that TPG has now had a chance to fully assess the limitations of the old Comindico network that was being used by Soul and saw the chance to buy into/the whole of Pipe to gain access to its national/city links rather than the IP and all of its debt. Whatever the reality is will presumably be known next week and will also explain the placement of 20% of Pipe's shares at a long way North of the last trading price - presuming the two are linked which seems more likely than not.
The 'scuttlebutt' back in March/April of this year (I can't remember exactly when) from sources senior enough and knowledgeable enough to have some credibility (if only because there weren't either Australians or based in Australia and were heavily involved in international IP provision) was that while Pipe had managed to 're-arrange' its financial problems by the 'skin of its teeth' in January/February 2009 but would face an even bigger financial problem around November/December 2009. It was a snippet in a much longer conversation on IP pricing in the future and I paid little attention to it then. If in fact TPG are going to invest in Pipe then I would see it as Steve sees it - a means of obtaining access to a much better National network but I would go further and think that TPG has looked at future growth in its residential business and has not liked what it sees and Pipe's major city dark fibre is a very attractive asset that it could use to protect future revenue growth forecasts either by lowering its cost of delivering business services or by wholesaling IP and national/city transit.
Personally, I find two things very, very strange about the concept of TPG buying Pipe or even investing heavily in Pipe. The first, and blindingly obvious fact is that Pipe's shares last traded at a very high price (ignoring the apparent 20% placement at an even higher price which would make sense in that it would provide the money needed to meet the upcoming financial commitments but at such a premium it ....well..it's hard to think of a scenario under which such a price would be paid - unless it was part shares/part pre-payment of future network use). The other very strange thing is that David Teoh has made an almost art form out of his 'take overs' of commercial entities. He has always paid rock bottom dollar for distressed assets - I don't think in TPG's history there is any other type of acquisition transaction....maybe I'm wrong.
If TPG actually is buying Pipe then it will make TPG a much more serious company than the company it is today and, presumably, will begin to accelerate the loss of stranglehold on the medium/medium large business market exercised by Telstra (and to a lesser extent by Optus and AAPT) both in data and wire line telephony which provides very, very high profits to all three of those companies. Depending on a whole host of variables it would seem to me to be something for those companies to actually worry about - as far as I can see the debt burden on the undersea cable and the tumbling pricing of IP in Australia would make the cable component of Pipe the least attractive part of Pipe - I would have thought almost a deal breaker.....if the debt can't be off loaded.
I have no interest in the general manouverings within the communications industry but as Exetel is moving to more involvement in the corporte marketplace the ramifications of this scenario of interent to us. A combination of TPGs small business base, Soul's old government customers/ NSW Comindico network and Pipe's additional national infrastructure and larger corporate customers would make a pretty useful 'challenger' to the three large carriers that dominate the business market at the moment. Then again it all might be something quite different.....as Chris suggests in his comment - maybe it's all about Vocus?