TPG bid tipped for AAPT

Telecom NZ's Australian wholesale broadband arm set for the auction block.

Telecom New Zealand has set a Christmas deadline to find a buyer for its Australian wholesale broadband arm AAPT.

AAPT, a wholly owned subsidiary of Telecom New Zealand, is being positioned for the auction block with David Teoh's TPG Telecom (TPM) shaping as a potential buyer, according to sources with knowledge of the sales process.

TPG has missed out on two major deals in the past three years but remains eager to bolster its broadband assets.

This year, TPG failed in its attempt to buy Leighton Holdings' (LEI) extensive portfolio of telecommunications businesses when one of Canada's largest pension funds entered an agreement to purchase 70% of the assets for about $620 million.

In 2010, the telco was also pipped at the post in the race for AAPT's consumer arm when iiNet emerged as a surprise late bidder to snare it for $60m.

But it is understood that iiNet, TPG's perennial acquisition rival, is not interested in the AAPT asset this time.

In a statement to the Australian Securities Exchange, Telecom said it is considering a possible sale of AAPT but no decision has been made about whether or not to proceed.

TPG is keen to get its hands on more interstate backhaul and broadband transit links and AAPT's extensive network is the remaining available asset that fits the bill. Vodafone Australia is in need of fibre backhaul to improve its mobile services and could also emerge as a potential buyer.

AAPT owns a significant fibre-optic cable network that links various cities and commercial hubs throughout Australia, including 11,000km of interstate fibre, its own data centres in major capital cities, and fibre access to 1600 premises.

Goldman Sachs is said to be managing the potential AAPT deal, which Telecom New Zealand is hoping could bring in more than $400m. But analysts say that Telecom New Zealand is unlikely to get the price it wants.

"It's been rumoured to have been on and off the market for the past five years, but Telecom always want top dollar for it when they just don't deserve it," an analyst said. "There are willing buyers for it because it has some really good assets like all its fibre, but then there are some really terrible assets such as its voice customers."

Since being bought by Telecom New Zealand for $2 billion in 2001, AAPT's value has had large writedowns as intense competition in the retail consumer market and a war waged with Telstra took its toll on the company.

In 2007, Telecom New Zealand bought Powertel, an east coast focused group with more fixed-line telecommunications infrastructure than anyone bar Telstra (TLS) and Optus, for $357m.

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