It didn’t come as a surprise when, in late 2011, the mother company indicated that it was considering breaking up, selling or merging parts of the company. Rumours along these lines have been in the market for over a decade, reflecting the relative underperformance of the company, especially its North American assets; however, for the first time in a long while, the Canadian business has seen remarkable growth.
But its main asset, Primus Australia, has also underperformed in the overall market. In the 1990s it was the third largest telco in the country. It had dropped to number 4 by the mid 00s and currently – with around 200,000 customers – it is number 7 on the ranking list.
Most of Primus’s activities have taken place largely under the radar, but nevertheless the company is perhaps the most remarkable survivor in the market, having been declared close to death on many occasions. Overall the international group is still operating at a loss.
On the positive side, Primus Australia has been able to finetune its organisation, manage its costs and provide stable, middle-of-the road services to its customers – very few highs and lows, and it seldom features in the press for either good or bad reasons.
However, with the national broadband network (NBN) looming on the horizon, the company will have to make a decision as to what it wants to do. As with all the other players size does matter on the NBN, and while its main rivals have been growing Primus has lost ground. Its sizeable customer base is still substantial but not big enough to compete with the others moving forward. It will either have to step up competition or sell the company – there is no middle road.
Obviously this asset is of value in a consolidating market where growth has to come from acquisitions rather than from natural growth. There will most certainly be interest in Primus from other players, but as always the big question will be: at what price? In the current market situation it is possible to achieve a premium, but the reality is that it can only be a small premium, as its main asset ‘broadband access’ is a commodity product.
Plenty of lessons have been learned over the last decade and few prospective purchasers would be eager to make similar mistakes to those that have been made on previous occasions. More recent M&A acquisitions certainly have not produced any surprisingly high premium.
However this is not a local play. Primus Australia is the key asset within the international company and a split-off of Primus has been a problem in previous M&A deliberations, and that situation has not changed.
But there is action as, for the first time in a long while; the company is taking a more prominent position in the market, making comments about its undervalued assets; the NBN –calling for the government to compensate smaller players like Primus; as well as in relation to the regulatory discussions that are currently taking place in the market. All indications are that action is imminent.
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