He expressed the view that Soul's motivation was to bolster its corporate business, which he said was performing poorly. "In addition Pipe's fibre assets (particularly backhaul, inter-capital) would lower the transport cost for SOT's ISP business. As would the PPC-1 cable (cheaper international submarine cable capacity). Given the differing natures of the business, we do not expect massive synergy opportunities. Whilst synergies would be achieved from a network perspective, they are likely to be much smaller from a customer service (people and IT) basis."
He added that the merger would create a company with a market capitalisation of $1.26b ($925m for Soul and $337m for Pipe) making it Australia's fourth largest listed telco, excluding Hutchison Telecommunications Australia of which only about three percent of the equity is floated.
Soul claims one of the largest networks in Australia with PoPs in all 65 Telstra call collection areas - a legacy of its acquisition some years ago of the Comindico network, built at a cost of over $300m but sold for fraction of that. Following its merger with TPG it is also one of the largest broadband ISPs with close to 400,000 subscribers.
In addition to its newly completed submarine cable, Pipe boasts Internet peering points in all major capitals and it claims that its metro area fibre network connects to over 75 major data centres, 100 Internet and application service providers, 200 Telstra exchanges and more than 500 buildings
SP Telemedia had a good FY2009, reporting a net cash inflow from operations before interest, tax, capex and debt repayments of $153m enabling it to make repayments in the year of $81m against its bank debt facilities leaving $58m outstanding and putting it $72m ahead of its debt repayment schedule with its next compulsory debt repayment not due until February 2011."
Blair said: "We don't expect SOT to make a full cash bid...SOT's improved net debt position may allow it to borrow $200-250m leaving $100-150m to be equity funded."
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