Deutsche fails to sell globe shares to SingTel, Ayala

Deutsche fails to sell globe shares to SingTel, Ayala

Sai Man and Micheline R. Millar
Dow Jones
Singapore

Philippine conglomerate Ayala Corp. and Singapore
Telecommunications Ltd. let an option to buy Deutsche Telekom
AG's stake in Globe Telecom Inc. expire, the companies said on
Monday, after failing to agree on a price.

The German telecom operator had offered the two existing
shareholders an option to buy its 24.8 percent stake in Globe -
which some analysts value at between 400 - US$500 million - for a
period of 45 days, which ended on Friday. Globe is the second
largest telecom company in the Philippines.

The failure to reach a deal prevents Ayala from further
tapping into a fast-growing earnings stream to complement its
slower-growing property, banking and other businesses. For
Deutsche, it dashes an immediate solution for the German operator
to reduce its 56.3 billion euro in net debt at the end of the
first quarter.

For SingTel, the failure is a temporary setback to its
overseas expansion strategy. The two-thirds Singapore government-
owned company has invested in Australia, Indonesia, Thailand,
India and the Philippines over the past decade.

But analysts said a deal could still be reached at a later
date as all three parties want it to go through and there is
limited interest from other investors for Deutsche's stake in
Globe.

SingTel, Southeast Asia's biggest telecom operator currently
holds a 29.1 percent stake in Globe while the Zobel family-
controlled conglomerate Ayala holds a 31.1 percent stake. Media
reports had said Ayala and SingTel were interested in taking
about 10 percent each of the Globe stake on offer.

Market reactions were mixed. At 0300 GMT, SingTel's shares
were up 0.6 percent to S$1.66 in Singapore, with some investors
relieved that the operator won't continue its overseas spending
for now. Globe shares were up 0.8 percent at PHP650 but Ayala
shares were down 1.1 percent at PHP4.50 as investors were hoping
the conglomerate would raise its stake in Globe to drive
earnings.

The three parties failed to agree on a price, industry sources
close to the negotiations told Dow Jones Newswires.

"In any kind of transaction, you want to buy at a reasonable
price. It was really an issue of price," which prevented a deal,
said one of the sources, who declined to be named.

Deutsche Telekom may try to sell to other parties, but it may
prove difficult because a clause in Deutsche's offer. The clause
states that Deutsche will have to sell the stake at the same or
higher price than that offered to Ayala and SingTel, the source
said.

"It's not that Deutsche has buyers queuing up for Globe.
There's not too many takers for minority stakes in developing
markets anymore," said Himanshu Chaturvedi, an analyst at DBS
Vickers Securities.

Globe reported that its net profit in the six months to June
rose 42 percent on year to PHP4.4 billion (US$1=PHP54.755), as
its subscriber base in the Philippines grew 34 percent on year to
7.3 million mobile phone users.

But the deal is far from being dead, analysts say, and it
would be in the interest of all parties concerned if it's
revived. Talk of extending the discussions to Wednesday was
considered, although this was ultimately rejected. Still, SingTel
is still keen on adding to its exposure to the Philippines, which
represents its oldest mobile phone investment in Asia outside
Singapore.

"We remain interested in Globe, but subject to terms and
conditions agreeable to both parties," Ivan Tan, SingTel
spokesman told Dow Jones Newswires on Monday. He declined to say
if there was any immediate plan to start a new round of talks.

Globe was the first of SingTel's S$18 billion (US$1=S$1.7568)
spending spree on mobile and fixed line telecom investments since
the early 1990s in Asia outside Singapore. As opposed to
Singapore where eight out of 10 residents use mobile phones, the
ratio is just one in five in the Philippines.

In the first quarter ended June, SingTel's revenue from
Singapore fell 6 percent on year to S$1 billion, with two-thirds
of group revenue now from coming from overseas. About 40 percent
of SingTel's profit before exceptional items in the quarter came
from its mobile associates, including Globe.

Ayala officials, who have described raising the Globe stake as
"an attractive investment," were unavailable to comment Monday on
whether the company will continue to pursue talks with Deutsche
after the expiration of the option.

Ultimately, SingTel and Ayala offer a good opportunity to
Deutsche, because selling to them would allow Deutsche to earn
more for its investment through a block sale, rather than selling
it piece by piece on the open market, analysts said.

But with Globe likely to grow in value as mobile penetration
grows in the Philippines, Deutsche is unlikely to be in a huge
rush to sell despite its debt burden, they say.

SingTel has said that it has the money to move ahead with the
Globe deal, but some analysts worry that Ayala would have to
raise debt. Ayala's current debt to equity ratio is 1.01:1,
meaning its equity is roughly equivalent to its debt.

"Its (Ayala) credit rating may come under pressure. Besides,
Globe's growth has slowed down. It probably makes Ayala
uncomfortable to put in additional equity," said Jose Vistan,
economist for AB Capital Securities. "Ayala shareholders, I
guess, are happy with what they have."