Analyst: Too early to tell SP Telemedia and PIPE Networks deal impact

Deal impact won't be known for some weeks or months

The impact of the tie up between SP Telemedia and PIPE Networks announced to the ASX yesterday, will not be known for some months, according to Layer 10 founder, Paul Brooks.

In a statement to the ASX, SP Telemedia (ASX:SOT) said it will acquire PIPE Networks (ASX:PWK) for $6.30 per share and valued the latter's assets at approximately $373 million; a premium of 15 per cent on the company's volume weighted average price over the past three months.

The deal is subject to the approval of authorities in Australia and the US, and PIPE's shareholders, which will be sought at a meeting likely to be held in March with the deal expected to be finalised by early April.

The announcement has created a wave of comment in the industry with many raising questions over how the operation will be run as SP Telemedia – which after a merger with TPG Holdings in 2008 has the retail brands of Soul and TPG – will gain access to wholesale assets.

However, Layer 10 founder, Paul Brooks, pointed out the deal was far from completed and its operational structure not likely to be known for some weeks or months.

"It is too early to tell yet. Nobody knows what SPT might do with the assets," Brooks told Computerworld.

"Nobody knows how much of the existing organisation will be retained for running the business. They may run it as a separate stand alone business and just use the relationship to get very good rates for SPT. It is just far too early to tell and we can speculate all we like. But PIPE will tell us what we need to know in due course in their own good time."

Brooks noted the positive impact PIPE has had on the industry with its support of industry groups and alternative business models. He said PIPE's launch of the its undersea cable system, PIPE Pacific Cable (PPC-1), stretching from Sydney to Guam, was the latest in a long line of achievements.

The cable system, capable of carrying data at 1.92 terabits per second, through the transmission of IP packets between Australia and the US, is expected to bring increased competition to Australia's broadband market.

At the time of its launch, PIPE CEO, Bevan Slattery said the PPC-1 submarine cable will be a catalyst for change in the Australian telecommunications industry

In a statement to the ASX yesterday, SPT executive chairman, David Teoh said the deal would position the company as a fully-integrated telecommunications provider.

"PIPE's extensive metropolitan dark fibre network will increase SPT's capabilities as a data communications provider," he said in the statement. "In addition, PPC-1 gives us a competitive advantage with access to international bandwidth, allowing us to offer highly attractive products to both existing and new customers."

PIPE chairman, Roger Clarke, described the deal as an opportunity for shareholders to increase the value of their investment.

"Having explored a number of strategic options, I am delighted the board is now in a position to recommend the SPT proposal," he said in the statement.

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