Demergers are back in fashion.
We are seeing increased demerger activities in the wider economy, and perhaps we should start to view the structural separation of Telstra and Telecom New Zealand in a similar way.
This would take the heat off the loaded phrase ‘structural separation’.
BuddeComm would like to state upfront that we are not financial analysts, but looking at this market from a strategic business perspective we have observed that the share prices of many incumbent telcos around the world are now so low that it is hard to imagine these prices falling any further, at least not in any dramatic way.
Ever since the privatisation of Telstra arrived on the agenda, in the late 1990s, we have argued for separation. When the Telstra share price dropped to around $5 we argued that if Foxtel, BigPond and Sensis were split off and that share price roughly divided into two equal shares the Telstra share price would perhaps remain at around that level and/or increase slightly over time (behaving more like a utilities stock) and that the digital media stock would see stellar growth, as it would instantly become the country’s hottest digital media company – with great management, great products and great technologies.
Given the current share price, that might be an even more attractive option for the shareholders, since there is still a great opportunity for a new digital media company in Australia.
Telecom New Zealand does not have such options. We commented negatively on the fact that it sold its directory business, several years ago now. However it has a strong infrastructure business (Chorus) and, despite its poor performance, it also has a potentially strong IT company (Gen-i).
There are good demerger options around this as well.
Telecom New Zealand should not waste the great opportunity that is right there in front of it. It should start splitting the company up. Its failure to do this, thereby missing out on its participation in the UFB, would be the beginning of the end for the company.
TNZ needs to go through a drastic transformation and delaying this in order to take on the infrastructure companies that are going to build the UFB would be a lost cause – not immediately, but in the medium- to long-term future.
Infrastructure competition on a utilities basis will be a very tough job indeed.
More so, perhaps, than with Telstra, we also see strong new M&A opportunities for other companies around the demerged Telecom News Zealand units.
As to Telstra – we see strong opportunities for this company to look at acquisitions to further strengthen its IT and digital media companies.
- New Zealand – Telco Company Profiles – Telecom Corporation New Zealand – Company Overview – 2010
- Telecom Corporation New Zealand – Company Overview – Background Report – mid-2010
- Telecom Corporation New Zealand – Financial Statistics – Background Report – mid-2010
- Australia – Telco Company Profiles – Telstra Corporation Limited – Company Overview and Operating Statistics
- Australia – Telco Company Profiles – Telstra Corporation Limited – Financial Statistics – 2010
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