Lost Again – What Should DIGI Do Next?

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Mar 16 2007
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As expected, DIGI.com Berhad (KLSE: DIGI, stock-code 6947) lost again in its’ bid to secure the WiMAX license to newcomers despite having the right people, financial strength, infrastructure and technical know-how. After losing the 3G bidding to loss-making Time DotCom Berhad (KLSE: TIMECOM, stock-code 5031), unlisted pay-TV operator MITV Corp, Maxis Communications Berhad (KLSE: MAXIS, stock-code 5051) and Telekom Malaysia Berhad (KLSE: TM, stock-code 4863) earlier, DIGI proves again how helpless it is when dealing with business in Malaysia which mixes politics as the main ingredient when comes to awarding lucrative & profitable license.

Already DIGI is required to sell-down to the allowed 49% limit for foreign companies. Telenor, the parent of DIGI seems to be losing more cards in growing the telecommunication business in Malaysia and decided to do what most of the foreign investors will do – to suck up the coffer as dry as possible. The strategy of the Malaysian government in saving the very-sick Time DotCom Berhad (this company was one of the listed companies which the shares were “Under-Subscribe” during the IPO) is to award the 3G license to it and deny DIGI of one. DIGI was then pressured to “work with” Time DotCom – a way to get DIGI to pour its’ money and expertise into Time DotCom.

Unfortunately DIGI didn’t take the bait and was willing to survive alone without any of the 3G. Time DotCom was then rumored to move into second gear of trying to acquire DIGI (which was denied by Time DotCom) but with the support and backup from the government, it’s a matter of time before DIGI needs to raise the white flag. An instruction is all it needs to buy over DIGI via share-swap (the cheapest way). So DIGI pushed up the stock price to the unbelievable RM 17.00 a share to prevent a possible hostile takeover. With Time DotCom stock price at RM 0.80, it’s a ratio of almost 21 Time DotCom’s share to 1 DIGI’s share.

Of course, money solves tons of problem and if Time DotCom or its’ backers really push all the ways, DIGI will be at the losing end ultimately. What Telenor wants is to get as much money as possible from DIGI in the event it’s being elbowed out of business. Furthermore, DIGI is not spending as much as before (practically) on any hardware or software which could be terms liabilities and could not be transferred out from Malaysia. To further sucks the coffer dry, DIGI proposed high dividend with the aim of slowly but surely reward the shareholders, in this case Telenor itself. So who do you think is the winner and smarter? Maybe DIGI should just wait and see if the new winners of WiMAX can deliver what the government was hoping for.

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