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Telekom Malaysia TM To The Rescue – TimeDotCom



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Dec 02 2006
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Will TM, previously known as Telekom Malaysia (TM : stock-code 4863) finally acquire Time DotCom Berhad (TIMECOM : stock-code 5031) after talk about it was in the air for some time? The news resurfaced again in a local media.

Sources said that the telecommunication giant is considering a plan to acquire about 42.7 percent stake in Time DotCom Berhad from its parent Time Engineering Berhad. The offer price for the said 1.1 billion Time DotCom shares may be in the region of RM 1.00 to RM 1.20 per share.

The deal if materialized will turn TM into a “broadband giant” with the assistance in the provision of broadband services by Time DotCom which boasts an estimated 5,200 km of fiber-optic cables laid alongside Time’s highway projects. Khazanah Nasional Berhad, the state-controlled investment arm owns 35 percent of TM and 45 percent in Time Engineering.

TM and Time DotCom each have a 3G (third generation) license enabling them to roll out high-speed Internet Services but the high costs (RM 1.0 to RM 1.5 billion) of such infrastructure has prevent such roll-out. Hence it would be more cost-effective to merge both to halve the costs of the much awaited services.

Earlier, DIGI.com Berhad (DIGI : stock-code 6947) surprisingly failed to secure a 3G license despite being one of the fastest and profitable mobile phone company, losing to the loss-making Time DotCom and new unlisted pay-TV operator MiTV Corp. It created controversial as the decision supported rumor that DIGI might lose on the basis that it was foreign-owned, parent being Telenor Asia Pte Ltd and Telenor ASA. It was also seen as a way to force DIGI to pay and leverage on Time DotCom’s 3G license but DIGI’s CEO Morten Lundal was quick to counter that DIGI has other alternative and not necessary 3G to roll out 3G-equivalent services. Others said it was because the relevant authority needs to protect Maxis (MAXIS : stock-code 5051) and Celcom from further onslaught by DIGI which no doubt is the leader in rolling out innovative services and products and has been consistently eating into both’s market share.

But perhaps the more compelling reason is the need to solve Time Engineering’s debt which stand at about RM 900 million as of end of September 2006 with about RM 700 million being the US Dollar denominated bond (due mid-2007). For the 9 months ended September, Time Engineering posted a net loss of RM 13.4 million on RM 320 million revenue. Time DotCom on the other hand posted a net loss of RM 125 million on RM 260 million revenues for the same period.

The acquisition of Time DotCom, if goes through, might trigger a MGO (mandatory general offer) for the remaining shares which will costs TM additional RM 1.4 to 1.7 billion.

Why would the merger important and need a push to go ahead? Securities Commission (SC) imposed a condition of which Time DotCom required to register 2 (two) consecutive years of operating pre-tax profit before Time Engineering and Khazanah Nasional can exit. When Time DotCom was listed in early 2001, the shares were heavily under-subscribed and made worst with its losses thereafter making both Time Engineering and Khazanah Nasional stucked without an exit-plan. However SC has since reversed this ruling in March 2006.

Another possibility would be the re-listing of Celcom, TM wholly owns lucrative and profitable mobile business which it took over from Tan Sri Tajudin Ramli in 2003. By re-listing Celcom, TM could be looking at about RM 7.0 billion of cash for it to pocket (based on the market capitalization before Celcom was taken out of Bursa Malaysia or KLSE).

With Time DotCom closed RM 0.89 last Friday, 1-Dec-2006, the stock’s price could see some chase-up by speculators prior to an official announcement on the rumor. With the rumor price acquisition of between RM 1.00 – 1.20, there’s a 10 % – 30% potential in making fast money.

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