According to a Reuters news report, Indian telecommunications giant Reliance Communications may be trying to sell off all or part of Reliance Globalcom. That unit’s primary assets are its FLAG undersea cable assets and US metro Ethernet operator Yipes. There are also the Vanco assets which were not mentioned. Supposedly, Reliance is trying to sell the unit to someone like KDDI, Verizon, or AT&T for some $3B. On the other hand, a Reliance spokesperson has ‘vehemently’ denied the rumor. Personally, I smell a not-so-subtle trial balloon floating through the air here.
The argument in favor of such a sale is that Reliance needs capex for its wireless buildouts in India, which I suppose is an entirely valid reason. The international fiber and data arm is small in comparison, and has less growth potential. If they need cash and can’t get it another way, this is a reasonable possibility. And I have been hearing all year the the company has been looking to improve its cash position. One could also see Reliance Globalcom’s intention to spend capex on a datacenter buildout as a drain they could do without.
So why a trial balloon? The price tag looks a bit steep. Last summer, Qwest put itself up for sale for that amount, but it probably had quite a bit more revenue. Reliance bought Flag for $209M back in 2003, then Yipes two years ago for $300M, and Vanco for about $77M just last year, which altogether makes less than $600M invested plus whatever else they had. The submarine cable business has improved in the last couple years, but not THAT much, and they paid up for Yipes before valuations fell. Vanco was falling apart a year ago, how much could it be worth after 12 months of recession? Qwest tried to sell its network for $2-3B over the summer, but they had a billion or two in revenue (depending on it might be divieded) plus nationwide fiber and conduit in the US. I just don’t think Reliance Globalcom has much of a better chance of reaching that number.
So I think it is a trial balloon, i.e. they want to see what people think it’s worth without actually putting it up for sale.
Who would buy Reliance Globalcom if it were really for sale? Probably a Japanese telecom or perhaps someone out of Singapore. I actually doubt the US operators would, they just don’t need it enough right now and are focusing more and more on wireless. The same goes for the European PTTs. In a world where there were no international rivalries, I would say perhaps China Telecom. But politically that is probably out of the question. A wildcard could be Global Crossing, if their Singaporean backers decided to make a play. But not at the kind of prices mentioned here.
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