Australia’s largest phone company Telstra Corp will acquire Hong-Kong and Singapore headquartered communications provider Pacnet Ltd along with its 46,000 km of undersea cable networks for $697 million, the companies announced Tuesday.
Telstra, which is looking to expand its presence into the Asian markets, will take on about $400 million in debt as part of the acquisition. The deal that will be completed by mid-2015, includes, Pacnet’s joint venture, PBS, which is licensed to operate a domestic Internet Protocol Virtual Private Network (IPVPN) and provide data centre services in China.
In the year ended December 2013 Pacnet had revenues of $472 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $111 million.
Pacnet is currently owned by private equity players – Ashmore Investment Management, Spinnaker Capital and Clearwater Capital Partners – who had bought out the company from China Netcom in 2006. It had been looking for a buyer after it had shelved plans for a listing in 2012.
The combined entity can emerge as a leader in the Asia service provider market, as it provides Telstra with an expanded submarine cable as well as data centre networks, along with a foothold in China; in addition to operational and cost synergies. It will compete with Singapore’s SingTel and other global players like BT, AT&T, Vodafone and France Telecom owned Orange Business Services.
For the Australian communications major, the deal enables it to access to Pacnet’s offices across 24 cities in 11 countries. Pacnet’s assets comprise of data centres and sub-marine cables across Asia-Pacific. It operates a network of 29 interconnected data centres in 17 cities across the Asia-Pacific region and also has 109 PoPs (points of presence) across 61 cities in this region, and eight cities outside of the continent (US and Europe), aimed at both the carrier and the enterprise customers.
Pacnet also has Asia’s largest privately-owned submarine cable network, which lands at 21 cable landing stations in China, Hong Kong, Japan, the Philippines, Singapore, South Korea and Taiwan. In addition, it also controls two of the five fibre pairs on the Unity trans-Pacific submarine cable network, connecting Japan to the United States.
In August, Moody’s Investors Service had downgraded Pacnet’s debt rating to B3 and said its liquidity position was ‘fragile’ and added that the firm’s partners would have to inject cast to allow it to pay the $20 million in interest payments due at the end of calendar year 2014. The report also said that Pacnet had registered revenues to the tune of $226.6 million during the first half of 2014, and an operating loss of $26.1 during this period.
Telstra chief executive officer, David Thodey said the acquisition was aligned to the company’s growth strategy, and was a significant step for the Australian telco as it continued to expand the business beyond Australia.
“Asia is an important part of our growth strategy. We believe this acquisition will help us become a leading provider of enterprise services to multinational companies and carriers in the region. The enterprise services market is evolving rapidly and Pacnet will strengthen our networks; data centres and submarine network as well as boost our service offerings and people capabilities.”
“For Australian businesses, businesses across Asia and importantly companies looking to expand and grow in Asia, the combined entity will provide powerful new options for networks and services. Pacnet increases the scale and scope of our assets, which can be used as a platform for Telstra to scale and expand leading solutions such as unified cloud, unified communications, managed network services and security services,” Thodey added.
