DiGi finally strikes deal with TdC

13-11-2007: DiGi finally strikes deal with TdC
by Sharmila Ganapathy
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KUALA LUMPUR: After more than two years of persistent market speculation, a DiGi.com Bhd and Time dotCom Bhd (TdC) tie-up is finally materialising.

Shares in both companies were suspended just before the midday break yesterday, pending an announcement by DiGi concerning a corporate exercise with TdC.

Prior to the suspension, DiGi fell 80 sen to RM23.60 with 160,700 shares done. TdC slipped 2.5 sen to 87 sen with 6.69 million shares traded.

“There will be a working partnership involving DiGi and TdC and it will be a win-win agreement,” an official close to the deal told The Edge Financial Daily.

In a filing to Bursa Malaysia yesterday, DiGi said the material announcement “may result in certain percentage ratios calculated in accordance with Chapter 10 of the Listing Requirements of Bursa Malaysia Securities Berhad equal to or exceeding 25%.”

Chapter 10 sets out the requirements that must be complied with in respect of transactions entered into by a listed issuer or its subsidiaries.

For acquisitions or disposals involving a percentage ratio of at least 25% - the value of the affected assets in relation to the net assets of the listed issuer - the issuer must obtain its shareholders’ approval.

This alone suggests that DiGi will be acquiring a substantial part of TdC’s assets that is equal to at least 25% of its own assets. Speculation has it that the acquisition will be made via a share swap.

The suspensions have re-ignited market talk that DiGi will be buying into TdC to secure rights to the latter’s third-generation (3G) spectrum.

The Edge Weekly had reported in July last year that DiGi and TdC were being matched, with plans for Khazanah Nasional Bhd to emerge as a shareholder in DiGi.

Then in July this year, The Edge Weekly reported that TdC’s wholly owned subsidiary TTdotCom Sdn Bhd could be acquiring a 5% stake in DiGi, giving up exclusive rights to the use of its 3G spectrum in return.

While details of the DiGi-TdC deal remain unclear, analysts concurred that the corporate exercise would likely involve a share swap agreement.

“In our view, the corporate exercise would likely involve a share-swap arrangement between TdC’s subsidiary company which holds the 3G licence and not with TdC directly as the latter has fibre optic assets which is deemed as national interest assets and highly sensitive (if acquired) by foreign parties (Telenor),” said Mohd Izhar Allaudin, an analyst with MIMB Investment Bank.

It is clear that DiGi wants the 3G spectrum, having previously failed to secure 3G and WiMax licences. DiGi chief executive officer Morten Lundal was quoted in recent media reports as saying that while WiMax and 3G could both offer broadband access, 3G was preferable as it could help DiGi increase the efficiency of its voice offerings.

DiGi’s rivals Maxis Communications Bhd and Celcom (M) Bhd both have 3G licences. A looming threat is U Mobile Sdn Bhd, which plans a 3G rollout by year-end.

Some quarters have speculated that DiGi is buying into TdC itself to gain access to the 3G spectrum and its broadband infrastructure covering over 5,200 km of fibre-optic lines nationwide. However, it is learnt that Lundal had indicated to fund managers the company did not see value in TdC’s fibre optic infrastructure.

A tie-up with DiGi would give TdC the additional resources and the capacity to roll out 3G services. Despite being debt free, it is saddled with accumulated losses of RM2 billion.

Adding to this pressure is the fact that TdC had been penalised RM5 million for its 3G rollout delay. It is learnt that TdC had received a letter from the Malaysian Communications and Multimedia Commission informing it of the penalty.

TdC had in the past been told by Khazanah to put on hold 3G plans pending discussions over TdC’s shareholding.

When contacted, TdC managing director Datuk Baharum Salleh declined to comment while DiGi officials were not available for comment. A TdC employee said it ‘was business as usual, with no indication that TdC will be sold.”

Sources said TdC had to postpone a working retreat for its board of directors scheduled to be held here today. The board was to work out its strategic planning for next year.

“Given the latest developments, the directors will instead be having an emergency board meeting today,” a source said.

The question now is how much DiGi is willing to pay for the 3G licence and how much Khazanah is willing to sell it for
Analysts say the price tag for TdC itself could be to the tune of RM1.20 per share and as high as RM1.60, post-partnership.

However, an analyst with a foreign research house valued TdC at a mere 64 sen due to its accumulated losses and “because it is sitting on assets that are highly underutilised’, referring to its underutilised 3G and fibre-optics infrastructure.

Source = http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_370f077d-cb73c03a-1d4d4930-1e367cc4