Published On:Tuesday, November 17, 2009

By NEIL HARTNELL

Tribune Business Editor

THE world's largest cellular operator by turnover, Vodafone, is teaming up with a consortium headed by J P Morgan's private equity arm to bid for a 51 per cent stake in the Bahamas Telecommunications Company (BTC), although they face competition from a field that sources say includes Digicel, Atlantic Tele-Network and Trilogy International Partners.

UK media reports confirmed yesterday that Vodafone was considering whether to participate in the consortium being put together by JP Morgan Partners, in which it would effectively by the 'operating partner' for a privatised BTC and provide the management/technical expertise should the group ultimately succeed in clinching a deal with the Bahamian government.

In return, it was suggested that Vodafone, which at August 2008 had a stock market valuation of £75 billion, would receive an equity stake in a privatised BTC.

"I would say it's a strong combination," one Bahamian telecoms observer told Tribune Business yesterday, when informed about the potential Vodafone-J P Morgan tie-up.

If Vodafone, which earlier this year had an estimated 303 million customers in 31 markets, spread across five continents, does team up with the private equity fund - which would be the financing partner for any BTC bid - it would give the Government much of which it is likely to be seeking.

For it pairs a world-recognised, 'tier one' telecoms brand name with a powerful financial backer, something likely to give the Government comfort that a privatised BTC's future would be in good hands through the combination of telecoms technical know-how and capital access the Vodafone-J P Morgan team could offer.

The failure to attract a leading telecoms brand to run BTC was a key factor behind why the former Christie government rejected all three bidders in the failed 2003 privatisation process, although the main one was that the offers received failed to match the then-administration's valuation of the company.

J P Morgan's private equity arm was involved in that 2003 process as part of the BahamaTel consortium that was selected as the preferred bidder. That group was put together by Tom Bain, a former managing director who headed J P Morgan's European operations.

Some observers have speculated, although there is no evidence to suggest this, that Mr Bain might be involved in J P Morgan's renewed interest in BTC, and as a UK resident could have helped put them in touch with Vodafone.

Still, any J P Morgan-Vodafone tie-up would be, at face value, a formidable candidate to become the Government's privatisation partner with a 51 per cent stake in BTC, although Prime Minister Hubert Ingraham has hinted that a more sizeable stake could be sold if the offer is right. Much will depend on the terms and conditions of the final bids received, plus the purchase price offered.

"The Bahamas would fit into Vodafone's international presence with the clear advantage of being a market that's not only lose to the US but also Cuba," one source said. "The fact that BTC has a fixed network also fits into Vodafone's strategy of increasingly focusing on broadband services."

Apart from Digicel, the pan-Caribbean based wireless/cellular operator which has long been desperate to enter the Bahamian market to round-off its presence in this industry, the other remaining bidders are said to be Atlantic Tele-Network and Trilogy International Partners.

Atlantic Tele-Network, which is listed on the US Nasdaq stock market, provides wireless, fixed-line and broadband Internet in markets in the US and the Caribbean, making it - on the surface - a good fit for BTC given that it is in the same products and markets.

Company

The company has a presence in Bermuda and the Turks & Caicos, where it operates as Bermuda Digital Communications; in Guyana, where it is GT & T; and Choice Communications in the US Virgin Islands. Atlantic Tele-Network said it specialises in telecoms markets that are underserved and provide geographical challenges, again making it a seemingly attractive partner for BTC.

Trilogy International Partners also has a presence in the Caribbean, where it is present as ComCel Haiti and TrilogyDominica in the Dominican Republic. It also has operations in Bolivia and New Zealand.

Headquartered in the US, Trilogy has a regional operations office in Fort Lauderdale, and chiefly targets wireless/cellular operations for acquisition in markets it believes have major growth potential.

Given Digicel's presence also, it appears that the BTC privatisation process has attracted a number of predominantly cellular operators. That should come as no surprise, given that 70 per cent, or more than two-thirds, of BTC's revenues come from its cellular monopoly, effectively meaning that the company is a glorified cellular operator with a declining fixed-line business - due to competition - and an Internet business that clearly lags that of Cable Bahamas.

Observers have expressed concern to Tribune Business that cellular specialists such as Digicel would not be the right privatisation partner for BTC, as these operators would seemingly have minimal need or use for its other fixed-line and Internet products.

BTC, they also argued, is clearly massively overstaffed for a predominantly cellular company, but the Government is likely to insist that the terms of any sale include a clause that prevents the buyer from laying-off any personnel for several years - something vital from a political and social perspective, given the recession and current unemployment levels.

It is unclear what purchase price the Government expects to realise from selling a majority stake in BTC, although some close to the situation have suggested a figure of around $200 million. It is not known, though, whether that figure includes a $30 million dividend the Government plans to take from BTC prior to privatisation.

The due diligence phase they are currently engaged in will allow buyers to enter a 'Data Room', where they can access financial, business and legal information on BTC. They will also be able to meet with key members of BTC management.