SP Telemedia to buy Pipe Networks for $373m

SP Telemedia to buy Pipe Networks for $373m

Summary: SP Telemedia, owner of TPG and Soul internet service providers, has announced its intention to acquire Pipe Networks for $373 million.

TOPICS: Telcos, Optus, Telstra, TPG

SP Telemedia, owner of TPG and Soul internet service providers, has announced its intention to acquire Pipe Networks for $373 million.

The acquisition will give SP Telemedia an extensive dark fibre network across major Australian business centres, such as Brisbane, Melbourne and Sydney, and will also give it Pipe Networks' newly lit-up Sydney to Guam international cable.

"PPC-1 gives us a competitive advantage with access to international bandwidth," SPT executive chairman David Teoh said in a statement today.

The deal confirms a report published by ZDNet.com.au last week when Pipe Networks issued a statement that it had been pitched something it needed to consider.

In its statement to the Australian Stock Exchange, SP Telemedia reported it had acquired 2.8 million of Pipe Networks' shares under an agreement for $6.30 each, representing a 15 percent premium on its average price over the past three months. At the close of its last day of trading on November 3, prior to the request by both companies for a trading halt, Pipe Networks shares were trading at $5.99.

Pipe Networks' directors, Bevan Slattery and Stephen Baxter own 27 percent of the outstanding shares in Pipe and have granted SP Telemedia call options over a portion of these. SPT owns 19.9 percent of Pipe's shares as of today.

Michael Malone, managing director of iiNet, an early PPC-1 customer and competitor to SP Telemedia, said the deal was no threat to its status with PPC-1 and that iiNet was "comfortable with the deal".

"Most of our international capacity is presently with Telstra," said Malone, "so this really doesn't change the landscape very much. It's the nature of our industry that it's networked, by definition... We all buy stuff from each other anyway."

During the financial crisis last year, Pipe Network's financiers had pulled funding for the new cable, casting doubt on the project's continuance. However several customers, including iiNet and Internode, had agreed to sign up as early customers prior to the pipe's launch, effectively saving the cable. The cable has been credited with driving down international data carriage costs for Australian ISPs and consumers.

Malone said he was delighted for Slattery and Baxter. "They've had a stellar run, taken some ballsy risks, and changed the landscape of Australian telecommunications forever. Good on them for achieving an attractive exit price."

Topics: Telcos, Optus, Telstra, TPG

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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  • Takeover of NOT in shareholder interests

    Having been a shareholder of Pipe Networks for a few years now, I am very disappointed in the proposed takeover terms published today and the approach that has been followed.

    Please explain how it is in the best interests of shareholders to give up a substantial upside from growth AS PER RECENT MANAGEMENT FORECASTS, in exchange for a purchase price that represents ONLY 5% PREMIUM to the prevailing shareprice?

    The comparison to 3-month and 6-month VWAP are opportunistic as they ignore the execution risk that was factored in to the share price prior to the go-live of PPC-1. Shareprice since that point has been around or above $6.00 per share - compared with takeover offer of $6.30.

    Please explain why it is justified to provide deal to Soul/TPG which reflects NO takeover premium, little if any strategic benefit to the company, yet lock Pipe Networks in through various clauses include break fees from pursuing more attractive opportunities for the company?

    Please explain how Pipe Networks business model of providing competitive, independent solutions will benefit from become a cog in a vertically intergrated Retail telecommunications provider?

    This deal stinks and I certainly will be voting against it.

    (independent shareholder of Pipe Networks)

    I also cannot understand when all the hard yards have been done to make PPC-1 a reality they accept effectively only a 5% premium.

    They are about to start seeing the benefits of this and their other growth opportunities.

    I cannot believe the price would not have been higher by March next year confirming they are getting it cheap.

    Another PWK shareholder
  • re

    how does the scheme of arrangement work? what % of shareholders does it need for the merger/takeover to go through
  • Pipe network owner exit deal no good

    I thought I bought shares ( pwk) in a good company with solid recurring revenue. To have it sold off for a mere 5% premium is stupid and dissapointing. Let's hope a smart investor emerges and blocks the opportunists.
  • Well i know what i would do..

    If i was in Bevan's position i'd find it hard to turn down the cash. $100mill is hard to say no to!
  • anonymous

    "If i was in Bevan's position i'd find it hard to turn down the cash. $100mill is hard to say no to!"

    Sure would be!
  • It's easy to help prevent it

    Just have 11% of the shareholders band together, form a new holding company and buy 11% of yourselves out. That will block SP from compulsory acquisition mode.

    I'm not saying that's an easy task but if enough of you are serious then do it.
  • Bevan and the Board think $6.30 is a good price

    Bevan and the Board think $6.30 is a good price.

    That's the reality.

    If you don't agree, you must be forming your opinion on different data to that used by the PWK board.
  • not at all

    Bevan and Board don't necessarily think $6.30 is a good price, they are just happy with the $100M cash they are crystallizing. All cash no script of SOT, maybe thats why they were happy to take the small premium !!
  • Good price??

    I could have sold pre-suspension at $6.00 per share put it in a term deposit till March and would have pretty close to the same amount.

    How is that a good price??

    Not a good share price at all for ordinary shareholders.

    But if you're a very large shareholder who wants to offload your holdings and take the cash (so can't just sell on market) then maybe it is.

    Point is the board is supposed to act in interest of ALL the shareholders not just ones with a vested interest in exiting the company..
  • Maybe Board is realistic?

    I agree that the baord has to act in the interests of all shareholders, and a board of a company dominated by the founders can sometimes failt o be independent. But could it be that the forecast is unrealistic and therefore the share price is unrealistic? The forecast relies upon sales being made. Taking the $6.30 now might be a really smart decision. And it's in the interests of all shareholders.
  • shareholders will vote no

    I doubt they are unrealistic forecasts, they usually underpromise and overdeliver. Also the new Guam cable is complete which will increase sales (that have been contracted)

    They are just taking the cash and keeping their well paid jobs, but spurning sh, who should get at least a 20-30% premium, not 5%

    we'll see how shareholders vote !!!!!!
  • maybe they know something you dont

    Would you sell a "booming" company that had already yielded you $100 million if you thought the growth path was going to continue?

    In considering all shareholders they 'must' have viewed that the bubble is about to burst - and in doing what theyve done theyve guaranteed it.

    A large part of their extraordinary growth was because of their independence from the retail market. Which sadly is not the case now.

    Maybe its a reverse takeover?

    The like of Malone, Hackett and Co although happy personally for Steve & Bevan must be considering new long term strategies.

    The Pipe is Dead. Long live the Pipe.

    (A shareholder and internet tragic :)
  • ...at least you're getting $6.30!

    how would you like it if the Federal Government had told you it was planning to acquire your company "for the greater good" and give you nothing........?

    now do you understand the Telstra shareholder's point of view?
  • ha

    poor telstra shareholder, we all sympathise for you, ha
  • Irrational board?

    So you're saying that the board has acted irrationally (or corruptly).

    They have the full information set. They think $6.30 is a good price. Think about it.
  • ha

    at least PIPE delivered value..... long live Sol
  • I'm not saying that

    No, I'm saying the board may be happy with that, you may be happy with that, so take your $6.30.

    I'm not happy with that and I'll vote no, as will a lot of other people, we'll see how the vote goes hey!!
  • Scheme requirements

    In a SOA the shareholders will be split into different classes. Arguably, SP Telemedia, Bevan Slattery and Stephen Baxter's shares will be put into Group A, (because these guys have got a special deal- unavailable to other shareholders) and all other shareholders will be put into Group B.

    To get up, >75% of the Shares in each separate group must be voted in favour of the Scheme and 50% of the shareholders in each group must vote in favour of the scheme.
  • Has anyone noticed the math on this....

    Immediately after the announcement the SP Telemedia shareprice rallied from $1.30 to $1.70..... that's 40c....

    But that 40c is applied against 708m shares or a nice $283m bump in the price.

    Assuming market efficiency (come on stop laughing) .... [OK I'll wait] ...... in a 100% debt funded takeover, the only price rise should come from "synergies" which make the target more valuable to the acquiror than the price paid.

    In this case we have a $373m takeover valuation on Pipe, but the SP Telemedia shareholders have valued it at $373 + $283m = $656m. Interesting....

    I said INTERESTING!!! - to you -- all you now rather stunned looking Pipe shareholders.

    Didn't hear me? OK.... To put that in lay terms to pay full price, SP Telemedia needs to up the $6.30 price by 71% to $11.08.

    But don't worry! From the same announcement the Pipe shareprice FELL. You would expect the price to rise by the probability the deal will close. In this case Pipe shareholders have indicated they believe the deal has a 0% weighted probability of closure.