TPG put key investor 'over a barrel'

The ACCC continues to paint the picture that TPG's network rollout plans were ad hoc management decisions conjured from the mind of its reclusive CEO David Teoh.
Written by Anthony Caruana, Contributor

Day four of the case between Vodafone and the ACCC over the telco's proposed merger with TPG started with the final minutes of David Teoh's cross examination by Michael Hodge QC, counsel for the Australian Competition and Consumer Commission's (ACCC).

Most of that testimony related to confidential matters and were held in closed court, but Teoh did reveal that the decision to upgrade his proposed, but never built, network from 4G to 5G if it were to become available, was made unilaterally.

Once Teoh vacated the witness box, the managing director of Washington H. Soul Pattinson (WHSP), Todd Barlow was questioned by Hodge over his company's involvement in the AU$400 million capital raise that funded a substantial portion of the AU$1.26 billion purchase of 700MHz spectrum.

Barlow said WHSP's support of the capital raising -- a significant matter for TPG's second largest shareholder -- was done with little detailed analysis as the decision to buy the spectrum was completed before the capital raise was undertaken.

Under questioning, Barlow said that he would undertake more detailed analysis, but the "ins and outs" of the business case were not important at the time because it was important to "be in the game".

When asked by Justice Middleton, the judge presiding over the case, if he had complaints about the process, Barlow said: "We were a bit over a barrel".

After intense examination by Hodge, Barlow then revealed that many of the changes, such as projected customer growth had allegedly come directly from Teoh.  

The rest of the day was mostly spent with TPG's CFO, Stephen Banfield, on the stand.

Following on from his questioning of Teoh, Hodge wanted a detailed understanding of the decision-making process behind certain variables within the spreadsheet model that was eventually used by TPG's board to bid for the 700MHz spectrum and raise capital.

As noted yesterday, some of the data in that model had changed significantly, shifting the project from minus AU$288 million in net present value (NPV) to a positive value of over AU$780 million.

The spreadsheet model in question was created by Banfield and used in board meetings.

Banfield said the variables in the model were allegedly changed often so TPG could test different scenarios. For example, it used a weighted average cost of capital rate of 10% in order to "stress test" the business case, he said. 

However, Banfield also admitted that the project period had been increased from seven years to 12 at Teoh's instigation, resulting in a substantial improvement in the project's NPV.

Hodge also continued to press Banfield on the company's plan for a 4G and eventual 5G network rollout.

From the first few days of testimony, the ACCC's case appears to seemingly be based upon the assumption that a block of the merger would push TPG into recommencing its plans to build a 4G and eventually a 5G network -- but that plan has been abandoned according to both Teoh and Banfield.

The case continues.

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