CWC overpaid for Columbus by US$1b, says Digicel
Smarting from comments that it was motivated by sour grapes, Digicel Group is doubling down on its plan to push for aggressive review of the pending CWC/Columbus International tie-up Tuesday, even as it alleged that its British rival negotiated a bad deal.
Digicel said in a press release that Cable & Wireless Communications overpaid for Columbus International by US$1 billion; and that the telecoms was worth no more than US$2 billion.
"The assertion by UK-listed Cable & Wireless that Digicel is suffering from sour grapes couldn't be further from the truth as the reality is Digicel was not prepared to over-pay for the business - unlike Cable & Wireless," Digicel said.
CWC is paying US$1.85 billion in cash and shares for 100 per cent of Columbus, whose operations span eight markets, and will be assuming close to US$1.2 billion of Columbus' debt - pricing the deal at US$3.025 billion. The price works out to about 12 times core earnings.
Columbus trades as Flow in all but one of its markets, while CWC trades as LIME.
Digicel at the announcement of the deal said a merger of the companies would tilt the playing field and make the cable TV and broadband markets less competitive.
However, CWC CEO Phil Bentley in an interview with this newspaper suggested that Digicel was motivated by sour grapes, and had adopted that stance because it had tried but failed to acquire Columbus.
Bentley said Digicel might have felt spurned because its offer was rejected.
The CWC boss, who has led the telecoms for less than a year, said his company would argue to regulators that the deal was good for investments, jobs and the consumer.
Digicel on Tuesday insisted the opposite would happen, saying it "will translate to higher prices for consumers, a slower pace of investment and innovation, job losses and ultimately, reduced economic stimulation for the Caribbean - not least because consumers will be looked on to pay up for the massive premium that was paid for the business."
Digicel is acknowledging its interest in buying Columbus for the first time, having previously said when asked if it had bid, that the company does not comment on "rumours".
However, Digicel Group CEO, Colm Delves, said that Bentley's reference to Digicel's interest in the asset was basically a smokescreen over the fact that CWC had entered into "a very expensive transaction that will put enormous pressure on its balance sheet".
Said Delves: "While Digicel did take a look at Columbus, the simple fact is that Cable & Wireless paid some US$1 billion more for Columbus Communications than in our view it is actually worth - a fact that should be of grave concern to its shareholders and the public alike. There is a real probability that customers will ultimately have to pay the price for the exorbitant price that was agreed. Cable & Wireless has said that it can't 'talk about pricing and plans until the deals are done', and that statement alone should set alarm bells ringing."
Digicel's volley comes as Flow and LIME are running press ads on the benefits of their combined services, and after Columbus shareholder Michael Lee-Chin launched a charm offensive with the media to sell the benefits of the deal.
CWC London was not reached for comment.