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."