M&A Journal: Reliance Finds Few Takers For Globalcom Assets

February 2nd, 2010 by · 5 Comments

According to a Reuters report, Indian telecommunications giant Reliance Communications is apparently having little luck shopping its Globalcom division since supposedly putting it on the market in mid December.  The deadline for bids has already been extended, and there just haven’t been many potential buyers even showing up to kick the tires.  Of course, a $3B price tag does tend to limit the field substantially to begin with.  Reliance, for its part, says it is not trying to sell these assets – but that is a claim that nobody seems to actually believe.  

The few buyers that have shown any interest are said to include Japanese giant NTT and glbc with further backing from Singapore – which certainly make the most sense relative to the field.   However, as I said before I think this whole thing is a trial balloon.   Sure, they’ll sell it if they get the price they are asking for, but really they’re just trying to gauge what the asset is worth in what form and to whom, so that they can maybe sell it later when the time is ripe.

When, at what price, in what form and to whom might that be?  Hmmm, sounds like a game of Clue! I’ll go with a deal in late 2010 at a total of $2.0B in three pieces to NTT, Global Crossing, and Abovenet.  Anybody with a competing wild-assed guess prediction, stop jeering and leave a comment!

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Categories: ILECs, PTTs · Mergers and Acquisitions · Undersea cables

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5 Comments So Far

  • fluids_only says:

    Doubtless Bill Barney will be trying to convince his owners that this would make a good acquisition for PacNet … although it could prove to be bridge to far even for him 🙂

    China Telecom will still be eying PacNet but Reliance Globalcom could be an alternative for them in case that falls through, or even just to drive the price down – it does seem to be a buyers market these days.

    • Rob Powell says:

      I can imagine Barney making the case for such a buyout, but I just can’t imagine the money guys believing a word of it.

      • Johson Leung says:

        Barney was seen in the traps and at conferences recently talking of the sale of FLAG as a benchmark for PACNET’s much announced IPO. The flop in FLAG must have PacNet’s CFO working a little harder than usual on a new IPO pitch.

        With the lack of anything significant this year and given Banrey’s past “liberalities” on the suppose acquisition of AAPT (recall the media release from AAPT – “PacNet who ?”) a while back I wouldn’t be surprised to see Barney announce a takeover bid for FLAG just to get his name and PACNET back in front of the media.

        If FLAG is valued at US$2B then what does this value PACNET – US$1B and change. Hardly a resounding success for the investors who must anxiously await some return on their ever increasing investments to BillNet (as PacNet is commonly called in Asia).

  • DaveRusin says:

    Thes pipes are of limited value unless they connect to physical fiber-based metro end points …

    • fluids_only says:

      Agree Dave. RGC has reasonable US metro network assets from the Yipes acquisition, at least in terms of addressing the financial industry vertical (though not in any sense in the same league as an XO, TWTC etc). But the rest is all the legacy FLAG undersea stuff with no metro (albeit good backhaul). That’s why it would particularly suit a large player wanting to use the network partly for its own internal needs – such synergy is required, IMO, to make it worthwhile.

      There aren’t any compelling “market consolidation” reasons to buy a sub cable company IMO because there isn’t really a moat with this kind of business. If you establish a monopoly position on a route then you are handing someone a business case to build against you.

      The challenge for Reliance now is to keep running RGC as a legitimate business even if they see no growth potential. Indians can cut costs far beyond what most people think possible, in some ways because in their local markets consumers have lower expectations of QOS. This would be a dangerous approach to adopt in the world of premium wholesale network capacity and premium corporate Ethernet products. A canny buyer might wait for the pain to get worse at RGC and buy a hot corner-cutting network they could restore to a proper level of maintenance with the right opex and mindset.

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