I have long expected Pacnet (news) to become a consolidation target, and that future seems to have arrived. According to a Reuters report, PT Telekomunikasi Indonesia has in fact submitted a bid for the Pacific regional cable operator that is said to value the company at about $1B.
I hadn’t really thought of Telkom as a potential buyer, but it makes as much strategic sense for Indonesia’s largest operator as any other regional incumbent. Pacnet’s private equity owners have been looking for an exit for a while now, but have had trouble getting the valuation they sought. New cable capacity throughout the region has pressured pricing, and lately there have been other related assets in play as well.
Reliance’s Globalcom is now pursuing an IPO of its submarine cable business in Singapore after trying to find a buyer for several years. And Cable & Wireless Worldwide drew the attention of Tata and Vodafone this Spring, with Vodafone emerging as the winner although it’s not set in stone just yet.
Actually, it seems as if Tata would be a logical buyer for Pacnet, but I guess the valuation was too rich. Level 3 could also make sense, returning to Asia in force via the former Asia Global Crossing assets, but they’re still quite busy with the integration that’s already in progress and they probably have more tempting targets in Europe and South America right now.
According to Reuters, Pacnet had $529M in revenue last year, with $82M in EBITDA — putting a $1B pricetag at 12 times EBITDA, give or take. That does seem quite aggressive. Indonesia’s communications infrastructure is so heavily dependent on submarine cables that a bid from the country’s state-owned operator surely has policy underpinnings. The nation wants more control over its connectivity, and no other asset would give it to them so easily.
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