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new offer?

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    TVG emerges as surprise bidder for PowerTel stake

    Hong Kong-based Telecom Venture Group (TVG) could be the catalyst for a desperately needed consolidation of the second- and third-tier bandwidth sector in Australia if its bold counter offer for PowerTel is accepted.

    The private equity firm, which specialises in communications ventures throughout Asia, yesterday emerged as the mystery bidder for US-based WilTel Communications’ 47% stake in PowerTel, which is currently subject to another offer from the Geoff Cousins- and Trevor Kennedybacked Roslyndale syndicate.

    While the two offers are structurally very different, both have the aims of restructuring the ailing PowerTel balance sheet, while also ousting long-standing investors of WilTel and clearing the board of the four WilTel-appointed directors.

    Under the terms of the TVG off-market takeover offer, the company proposes to inject $50 million in funds
    via a pro-rata rights offering and a takeover bid for all the ordinary shares of PowerTel for a cash consideration of 3 cents per share. If successful, TVG is proposing that, of the funds raised by the rights issue, $25 million will be used to partially repay PowerTel’s existing senior debt facility, currently drawn to $78.5 million, and fully acquire WilTel’s $21 million debt.

    The Roslyndale proposal involves the entire $21 million of subordinated debt becoming convertible into ordinary shares at 2.42 cents per share, while TVG proposes the same amount of subordinated debt being repaid in full using $10 million of the rights issue at 3 cents per share.

    TVG also proposes that $15 million of the funds injection be used for general corporate purposes. According to TVG director Edward Sippel, the company is a ”natural owner for this business”. An obvious TVG strength resides in the group’s potential ability to synergise its existing investments in Australia, which include DSL operator Request and regional operators Neighborhood Cable and TransACT, with PowerTel’s existing assets. It also has the back-up of $500 million in uncommitted funds to draw from for merger and acquisition opportunities.

    The deal is also open to all PowerTel shareholders, allowing PowerTel’s second-largest shareholder Downtown Utilities the opportunity to divest its stake. It is understood that TVG already has its eyes on a
    number of key acquisitions in the broadband market and has been in discussions with potential players for some time. However, Sippel added, ”there is no intention [of further acquisitions] at this stage, but obviously there are a lot of synergies in the market.”

    Sippel believes that any mergers and acquisitions would be viewed positively by the market. ”It is an industry of scale and economies of scale are important.”
    Sources close to PowerTel suggest that the PowerTel board and key investors WilTel and Downtown Utilities
    may favour the TVG proposal due to the investment group’s stronger ties to the telecommunications industry
    and its ability to please PowerTel’s banking institutions.
    One industry analyst commented that, while the Roslyndale Syndicate offered strong corporate connections, the figures behind the syndicate feature mass-market experience, which would suggest a dramatic change of direction for the carrier. TVG, on the other hand, could offer PowerTel the chance to play a pivotal role in the consolidation of the second- and third-tier sectors of the industry. The shareholders’ decision re the Roslyndale offer will be announced on July 2.
    Natalie Apostolou
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