Pacnet looks and waits for new targets

17 Mar 2009

Recessions are good for those selling cheap pleasures, like movies and beer. They're a boon for M&A merchants, too.

So it's no wonder rumors are swirling around Hong Kong-based Pacnet, an Asian telco well-experienced on both sides of the M&A ledger.

Pacnet has returned to the negotiating table in its search for an Australian arm to add to its growing enterprise services business. It has had further discussions with Telecom New Zealand over AAPT, its fully-owned Australian subsidiary which offers business and ISP services.

CEO Bill Barney told Telecom Asia that after acquiring all the bandwidth players it could in recent years, it was now debt-free and looking for further investments.

But opportunities were limited, with only three or four ISPs or telcos in each Asian market, he said.

Pacnet itself was formed by the merger 11 years ago of US IXNet and Saturn. It became Asia Global Crossing, which went into bankruptcy when its parent, Global Crossing, collapsed in the tech crash in 2001, and was then owned by China Netcom for several years.

In 2006 it was bought by private equity firms, Ashmore and Spinnaker, which funded its purchase of the C2C cable system and Singapore-based Pacific Internet.

Barney says the company has paid off $750 million in debt since exiting bankruptcy. 'We are fortunate that we don't have any debt. The average telco has debt, and raising additional finance is very hard in this market.'

He said investors were waiting for the market to bottom out before making bids. 'It's probably the frothiest market we have ever seen, even since 2001.'

While Pacnet is prospecting for acquisitions, tycoon Li Ka-shing is reorganizing his telecom investments.

After merging his Australian operation with Vodafone in February, he is planning a listed spinoff of his Hong Kong and Macau business. Analysts estimate the new entity could be worth as much as HK$2 billion ($254 million).

Hutchison Telecom's Hong Kong mobile operator, 3, has 2.7 million customers, HK$5.4 billion in sales and a 32.7% ebitda margin. Its fixed-line arm, HGC, posted a 37% ebitda margin on sales of HK$2.7 billion

HTIL CEO Dennis Lui said the planned listing would unlock the value of the Hong Kong assets.

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