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02/03/2007 - Seven Network in line to win $2bn Telecom New Zealand deal
THE Seven Network and its new private equity partner Kohlberg Kravis Roberts have made a shortlist to buy Telecom New Zealand's directories business in a deal worth as much as $2 billion.
Four groups have been making presentations to TNZ senior management and its adviser Goldman Sachs over the past two weeks, with final bids for the business due to be lodged by March 15, according to sources.
The process is being run by TNZ finance chief Marko Bogoievski, who is the leading internal candidate to replace chief executive Theresa Gattung when she departs mid-year.
Kerry Stokes' Seven Network, newly cashed-up from the sale of a half-share in the media business to a KKR joint venture, has bid for the directories business together with KKR.
CVC, which co-owns PBL Media with James Packer's Publishing and Broadcasting, is also believed to have made the shortlist.
While The Australian understands there is no formal connection between the CVC bid and PBL Media, it is believed that the Australian media group would look to use its relationship with CVC to extend its online reach into New Zealand.
"Ninemsn is working in the background with CVC," one source said.
The two other private equity groups understood to have made the final cut are New York's CCMP and a consortium of Bain Capital and Australian buyout group Private Equity Partners.
The deal is the third largest private equity auction now under way in Australasia after Qantas and Coles, with directories businesses being popular targets for leveraged buyout firms.
Seven/KKR is seen to have a strategic advantage over other bidders after its Yahoo7 venture last year pushed out Ninemsn investment as the provider of internet, email and web services for TNZ's Xtra internet service provider, the clear market leader in New Zealand.
Yahoo7 holds 51 per cent of the YahooXtra venture, with TNZ holding the minority stake.
Among the initial bidders that did not make the second round were Japanese venture firm Nikko and Telstra.
The Australian telco was told by TNZ management that it was unlikely to make the cut because of its position as owner of TNZ's biggest fixed-line competitor in New Zealand, TelstraClear.
Because of this conflict Telstra was told it would not be permitted to undertake due diligence on the business even if it was accepted into the process.
This forced Telstra's withdrawal, an event it spun as being its own decision based on the price being too high.
"The fact that we were there in the final bidding process means we can walk away (with the knowledge) that whoever has ended up with it has paid too much," Telstra spokesman Rod Bruem said on February 10.
"We are still looking at other opportunities."
People close to the process said Telstra was forced out before price was even discussed.
Still, public companies are at a disadvantage when competing against private equity groups, which can pump many more times the level of debt into their target bids than publicly owned companies.
http://www.theaustralian.news.com.au/story/0,20867,21309805-643,00.html
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