John Linton
The mooted sale by Futuris (basically an invester/profit taker) of its interests in Amcom (A Perth based 'last mile' fibre provider with fibre in other cities) should prove interesting in the wider context of the communications marketplace both for providers and for customers. Amcom has been slwly building up its capabilities to provide large capacity 'last mile fibre' to major businesses and government departments in Perth and more recently Adelaide as well as offering some residential broad band servcies. Futuris bought in to Amcom when it badly needed money to continue to survive and grow and, via its holding in Amcom, provided the money to first buy the Swiftel/PeopleTelecom CBD fibre assets and then more money to acquire a slowly growing share of iiNet (when iiNet ran out of money the last time).
At the time Futuris/Amcom bought in to iiNet, Powertel (subsequently taken over by NZ Telecom/AAPT) also bought into iiNet.
Futuris publicly states its reason for divesting itself of its Amcom/iiNet holdings due to lack of faith in the future of the 'independent' telecommunications industry in Australia - citing the reversal of the OPEL contract as why it believes this is the case. Understandable - pretty much the same view many other people share following the botched initial privatisation of Telstra and now the even bigger botch of the putative NBN - this doesn't appear to be a good time to be involved in funding the ballooning costs of building out a competitive telecommunications infrastructure.
The interest is, of course, in who will buy the Futuris stake in Amcom/iiNet and what they would then do with it. This article:
http://www.zdnet.com.au/news/communications/soa/Futuris-wants-quick-Amcom-sale/0,130061791,339291316,00.htm
sums up the various other media reports in terms of the possible buyers:
Optus, AAPT, Pipe Networks, Next Gen, Primus
Of these:
Pipe - would have a lot of difficulty finding the money given it's borrowings on the, as yet, undelivered new US cable
Primus has no money to buy anything
Next Gen (Leightons) would need to change its direction of the last three years substantially to get involved
Optus has no strategic interest in another retail outlet (iiNet) and has already duplicated the iiNet DSLAM network and the Amcom fibre network
.......which leaves AAPT which already has a 20% or so stake in iiNet and would find the iiNet DSLAM network (and its customers) a useful add on and the Amcom fibre a reasonably good fit with its acquired Powertel capital city fibre networks.
So AAPT seems the most likely - assuming the price is acceptable which it may not be as AAPT (Telecom NZ) has some Australian financing obligations that it will have to deal with to pay even a sensibly structured 'bargain' price for Amcom.
If AAPT does become the buyer of Amcom then that makes life interesting for the iiNet/Westnet recently 'merged' entity as AAPT in buying a 50% stake in Amcom becomes the majority interest in that company and, together with its stake in iiNet via its purchase of Powertel and subsequent share purchases (including the funding of the purchase of Westnet) would then have a controlling interest in iiNet and would have to buy out the remainder of iiNet's shares - itself adding another factor to the funding AAPT would need to put in place before it made any offer from Amcom.
I, of course, don't know anything about the current financing abilities of any of the companies mentioned as being possible Amcom buyers and even less knowledge of the possible price a sale of Amcom would achieve. Amcom's current share price ($A0.18) doesn't value the company very highly and iiNet's share price is high enough to deter any take over as it would take an awfully long time to recover (in the event that proved possible) a buyout of iiNet at the current price of $A1.70. If you just take the current share prices as what would be paid (and that is no a real basis) then you find that, as of today, Amcom is valued at around $A140 million and iiNet is valued at $A258 million. So if AAPT is going to be a buyer of Futuris's Amcom stake it is faced with paying something like $A290 million to buy 100% of Amcom and the remaining 60% of iinet that it doesn't already own. With neither company making any real (or next annual report to the contrary - any) money that is a Hell of a pay back period and a real messy and problematic 're-organisation' set of problems to acquire.
It makes you wonder, particularly given Futuris comments on why it was selling out of Amcom and iiNet, if a buyer will be found at all or, if a buyer is found, whether it will be some entity that simply wants to break up the Amcom/iiNet assets for a profit having bought control of Amcom for a bargain basement price - which seems to be more along the lines of WA 'investment' in non mining interests from my limited knowledge of that State's investment dealings over the past 20 years. It would also solve more than a few acquisition problems for a company such as AAPT if Amcom/iNet were sold off in 'pieces'. However the assets and current profits of Amcom don't make for such a scenario being the most likely outcome. It's difficult to find a reason why anyone would buy Amcom right now.
As Amcom, at least according to the cited article (which as Amcom didn't respond to the writer of the article seems difficult to substantiate but....), is now claimed to be wanting a 'quick sale' it will be interesting to see what happens to this, basically WA, part of the communications industry and what then transpires. It seems that the accumulated 'wealth' (or perhaps debts and ambitions) of iiNet, Westnet, Swiftel, PeopleTelecom and Amcom (plus more than 20 others I can't remember) are about to be re-cast - one more time. Personally, I can't see any Australian communications company buying into Amcom- there is just no value - so Futuriswill have trouble dumping its shares, at any price, to a carrier/telco and will have to offload via private buyers - WA companies preferred (only?) way of getting out of unprofitable investments.