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Merger with TPG
Creates one of Australia’s largest DSLAM footprints and increases earnings per share and
cash flow
8 February 2008For
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Acquisition Rationale
• Acquisition of TPG Holdings Limited - a provider of ADSL, ADSL2+ and dial-up services to residential customers and SMEs.
• Immediately earnings per share accretive.
• Combines TPG’s 200,000 customers with Soul’s 500,000-strong customer base.
• TPG’s network adds 238 DSLAMs to Soul network.
• Significant opportunities for capital and operational cost savings.
• Improves cash flow.
• A highly complementary acquisition with substantial opportunities to increase margins through greater use of the SOUL network and the opportunity to take advantage of demand for ADSL2+.For
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Acquisition Price
• $150 million in cash
• 270 million shares in SOT
• Enterprise Value of $230 million as at 6 February 2008
• EV/EBITDA forecast multiple of 4.7x
• EV/EBIT forecast multiple of 5.4x
• PE forecast multiple of 8.5x
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About TPG - Group Structure
TPG Holdings Limited
TPG Network Pty Limited
TPG Internet Pty Limited
Orchid Cybertech Services Inc(Philippines)
Chariot Limited
100% 100% 100% 70%
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TPG Operations
• Established in 1986 by David Teoh.
• Initially sold computer equipment and network and internet services.
• Sale of computer equipment ceased in December 2005.
• TPG provides ADSL, ADSL2+ and dial-up internet solutions to residential customers and SMEs.
• The internet business, TPG Internet Pty Limited, is the cornerstone of the current business.
• TPG also offers network solutions to corporate customers through TPG Network Pty Limited.For
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TPG Operations (continued)
• Orchid Cybertech Services Inc, located in the Philippines, is the call centre operation for the group.
• Previously a reseller of ADSL services, TPG began a strategic investment in DSLAM infrastructure in 2005.
• TPG now owns 238 installed DSLAMs Australia-wide, enabling it to offer ADSL2+ services at reduced cost.
• ADSL2+ services are growing, driven by consumer demand and lower subscriber costs.
• In April 2007, TPG acquired a 70.25% shareholding in listed internet services provider (ISP), Chariot Limited (market capitalisation: $9 million). For
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Financial Results and Projections
Note: Results Exclude Chariot
TPG
$m FY06A FY07A FY08F
Revenue 105.6 115.7 144.0
EBITDA 9.8 21.1 49.1
EBIT 7.6 16.7 42.3
NPAT 6.3 12.0 28.8
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Consolidated Forecast Financials
• Excluding amortisation of intangibles and abnormals
• Excluding synergies and Chariot contribution
• 4 months contribution from TPG
Combined group
$m FY08F FY09F
Revenue 469.2 607.0
EBITDA 51.9 107.8
EBIT 29.5 77.3
NPAT 20.0 48.2
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Acquisition Accounting Adjustments
• Acquisition may give rise to an intangible asset representing the present value of TPG customer revenue contracts. The estimate used is:
• The final asset value and amortisation will be subject to acquisition accounting confirmation and completion date.
$m FY08F FY09F
Amortisation of customer contracts 9.0 23.7
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Potential Once-Off Accounting Adjustments
• There will be a number of potential once-off cash and non cash adjustments in FY08 arising from the acquisition:
• Synergy achievement costs.
• Loss of carried forward income tax losses.
• Asset impairment adjustments.
• Once-off transaction costs.
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Potential Synergies
• The potential to migrate some of the Australian based SOUL activities to the Orchid operations based in the Philippines.
• Rationalisation of rented premises.
• Reduction in overall headcount through elimination of duplicatedpersonnel.
• Migration of SOUL resold services to TPG DSLAM infrastructure. Both Consumer and Business customers.
• Migration of TPG purchased backhaul to SOUL owned or controlled backhaul.
• Consolidation of SOUL and TPG PoPs.
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Potential Synergies (continued)
• Consolidation of SOUL and TPG purchased backhaul services.
• Migration of SOUL internet bandwidth to TPG.
• The cross-selling of products to current customer base.
• Introduction of SOUL Voice and VoIP capability to the TPG DSLAM infrastructure and customers.
• The implementation of same OSS and BSS systems to provide improved efficiencies to both SOUL and TPG.
• Reduction in capital expenditure on duplicated DSLAM rollout.
• General administrative savings.For
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Anticipated Integration Costs
• Costs Arising:
• Universal service obligation applied to TPG revenue.
• Capital expenditure required to interconnect TPG and SOUL networks.
• Cost of achieving synergies.
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Leading DSLAM Network
• The table below shows competitive exchange coverage.
• The SOT/TPG DSLAM network will be amongst Australia’s largest, enabling the company to take advantage of demand for ADSL2+ services.
• Combining TPG’s DSL network and SOUL’s voice network allows significant bundling and VoIP growth opportunities and greater use of company-owned infrastructure.
95299315303Coverage
NEC/NextepAAPT/Powertel/iiNetOptusTPG/SOULCarrier
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Indicative Transaction Timetable
Note: timing subject to change
Action Timing
ASX Announcement 7 February
Announce intention to bid for Chariot 7 February
Send Notice of Meeting to SOT Shareholders 3 March
Shareholder Meeting 7 April
Record date for special dividend 17 April
Completion 21 April
Issue Bidder's statement for Chariot 24 April
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Shareholder Analysis
* Excludes impact of Chariot takeover
Shareholder Pre-transaction Post-transaction
TPG shareholders - 40.0%
WHSP 46.3% 27.7%
WIN television 12.7% 7.6%
Other 53.9% 32.3%
Shares on issue 405.2m 675.2m
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Management Structure
• At completion the board will comprise five Directors:
• two nominated by TPG
• one nominated by WHSP
• two independent Directors
• David Teoh will assume the role of Executive Chairman after completion.
• Directors will be named prior to completion.
• Overall management team and structure will be announced by the board prior to completion.For
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Proposed Chariot Offer
• SOT intends to offer to buy remaining Chariot shares using SOT scrip at a price to be determined by the Independent Expert, if the SOT shareholder vote is successful.
• ASIC has granted a waiver under section 606(1) of the Corporations Act, which stipulates a person must not acquire a relevant interest in a company if the acquisition would result in that person’s voting power in the company increasing from 20% or below to more than 20%.
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Chariot Synergies
• Synergies achievable from a full acquisition of CTI include:
• Listed company costs
• General administrative savings
• Interest savings on transferred debt
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Conclusion
• Strategically and financially compelling acquisition.
• SOT/TPG will become one of Australia’s most profitable telcos.
• Owned infrastructure enables provision of all telecommunication products to all sectors (excluding mobile) throughout Australia.
• Greater customer base with opportunities to increase network traffic, bundle and cross-sell products.
• Economies of scale and lower average cost of customer acquisition.
• Strong capacity to participate in further industry consolidation.
• Creates shareholder value - EPS accretive, improved cashflow.
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