PT Telekomunikasi Indonesia Tbk (Telkom), the nation's biggest telecom firm, has submitted a bid to buy Asia's leading undersea cable operator Pacnet Ltd, in a deal that could value Pacnet at about US$1 billion including debt, sources said on Tuesday as quoted by Reuters.
Telkom's biggest overseas bid may mark the start of a wave of overseas acquisitions by Indonesian firms as they deploy profits made on the back of a fast-growing domestic economy.
Telkom submitted the bid last week after it reviewed Pacnet's business over the past few months, said one of the sources with direct knowledge of the matter. The source declined to be identified because they were not authorized to speak to the media.
State-owned Telkom, which has a market value of about US$18.2 billion, hopes the deal will be completed by the end of the second quarter, although the valuation has not yet been agreed and could be a stumbling block, one of the sources said.
Telkom, seeking to expand overseas as its home market in Southeast Asia's biggest economy matures, last year tried to buy Cambodia's biggest mobile operator CamGSM but the deal fell through over a valuation issue.
Pacnet's mooted sale comes at a time when the undersea cable unit of India's Reliance Communications Ltd is planning a US$1.4 billion IPO in Singapore.
Pacnet is owned by groups including Ashmore Investment Management and Clearwater Capital Partners. The company put itself for sale last year after its IPO plan was hit by choppy markets, but the sale stalled after it received lower-than-expected offers in the initial round of bidding, sources told Reuters earlier this year.
Pacnet has appointed Credit Suisse and Goldman Sachs to advise the sale. Telkom declined to comment while Pacnet was not immediately available for comment.
When bids were submitted in late November, the vendors were looking for an enterprise value of about US$1 billion, sources told Reuters earlier in January.
The company had an equity value of about US$600 million, debt of about US$300 million and US$100 in cash, sources then said.
Competitive pressurePrivately held Pacnet was formed in January 2008 by the merger of Asia Netcom in Hong Kong and Pacific Internet in Singapore. It owns over 46,420 km of submarine cable infrastructure across Asia and the Pacific Ocean, including cables connecting countries throughout Asia and the United States.
Pacnet, headquartered both in Hong Kong and Singapore, has been expanding its capabilities to tap cloud computing by building data centers in Hong Kong, Singapore and Australia to connect with its regional undersea cables.
Pacnet has been battling intense competition and falling prices and the company is expected to face significant competitive pressures this year, rating agency Moody's Investors Service said in a recent report.
"Furthermore, adjusted leverage of around 4.0x is considered aggressive, given the vulnerability of operating profit and competitive pressures," Moody's analyst Annalisa Di Chiara said in the report.
Pacnet recorded US$528.6 million in revenues in 2011, up 4.4 percent from year ago, driven primarily by the data service and whole sale voice segments. Adjusted EBITDA rose 2.2 percent to US$82 million in 2011, the report added. An enterprise value of $1 billion would give the company an EBITDA multiple of 12, higher than some analysts estimates.
In 2010, it raised US$300 million through a bond offering, which helped fund the building of data centres in Asia. Telkom shares were up 0.6 percent by Tuesday afternoon, compared with a 0.3 percent rise in the benchmark Indonesian share index.
Disclosure: No position at the stock mentioned above.
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