Hi Yanlin,Tell me about it. I have negotiated enough corporate...

Hi Yanlin,

Tell me about it. I have negotiated enough corporate deals, carrier supplier deals, exits, entries, and VC investments to know both the length of time involved, and the many gyrations through which the deals may well progress before reaching fruition.

The FNT has been re-engotiated twice to date.

Settlement of the first tranche payment was due for 31st October and involved a mixture of shares and cash.

On 2nd July, ATC announced the FNT deal in the following terms:

"Advantage Telecommunications Limited (AdvanTel) has announced, subject to approvals, the acquisition of the UK's leading prepaid calling card operator First National Telecommunications Group (FNT) for approximately A$77 million cash and scrip....Mr Stewart said FNT is profitable with a five year trading history and calendar 2002 revenues forecast to exceed A$175 million. He said
AdvanTel expects revenues to exceed A$210 million in its first year of combined operations with forecast net operating profit after tax of A$27 million....The scrip element of the consideration is made up of approximately 93 million AdvanTel shares with an attributed value ofA$0.42 per share to be issued in equal tranches at six-monthly intervals over a
24-month period from completion. All shares issued to the vendor will be in escrow for a period of two years from the completion date....Of the cash component of approximately A$37.5million, A$8.6million is
payable on completion, A$2.6million is payable six months from completion and A$21million is payable 12 months from completion. A final payment of a maximum of A$5.3million is payable 21 months from completion upon first year EBITDA targets being met by FNT.
Completion is expected to occur by September 2002. The cash consideration will be sourced from earnings and future funding".

That's a fairly comprehensive statement if ever I saw one.

On 12th September 2002, we were advised of the following revised acquisition terms:

"Advantage Telecommunications Limited (ASX: ATC) announced that it has renegotiated to purchase First National Telecommunications Group (FNT) for a maximum of up to A$25m in cash and A$20m in scrip. The deal represents a 33% cash reduction and 3% scrip reduction on the previously announced deal.....The enlarged Advantel expects to post profitable revenues of A$230m in its first year of combined operations with forecast net operating profit after tax of A$27m. This is a truly great deal for our shareholders....Under the renegotiated terms, AdvanTel will at completion pay $A15m in cash and issue 40 million ordinary fully paid shares to the vendor. The date of completion is expected to be 31st October 2002...In addition, 6 months from completion the Company pays a performance related payment of up to A$10m cash payment and issue up to a further 50 million ordinary fully paid shares to the vendor...AdvanTel are pleased to announce the engagement of Griffin Capital Investment Bank to advise on financing arrangements....
He continued, "We have identified several suitable investors and believe it possible to conclude funding arrangements within the near future".

Notice anything strange?

What about today's announcement (1st November 2002)?

That announcement reads:

"Advantage Telecommunications Limited (AdvanTel) (ASX: ATC) has previously advised the ASX of potential acquisition opportunities emerging in the global telecommunications sector....ATC and FNT have agreed to jointly investigate opportunities currently available that may positively impact on the proposed
acquisition of FNT by ATC....ATC and FNT have agreed to defer finalization of discussion regarding
the FNT acquisition pending the outcome of a review of these investment opportunities. Should the review not result in a positive commercial outcome for both ATC and FNT, then ATC and FNT will move to finalise discussions as soon as possible thereafter".

What about now? Anything strange?

Well, what about the following, for starters:

1)
Announced 2nd July, for completion by September 2002, revised on 12th September, for completion by 31st October, revised on 1st November, in terms of "deferral of further consideration" (my emphasis).

2)
Detailed terms of acquisition set on 2nd July, and revised on 12th September. Nothing even remotely like this from today's statement.

3)
On 2nd July, "cash consideration will be sourced from earnings and future funding". On 12th September, the engagement of Griffin Capital Investment Bank "to advise on financing arrangements" was announced and "(w)e have identified several suitable investors and believe it possible to conclude funding arrangements within the near future". On 1st November, nothing.

In 4 months, we have gone through self funding, to the engagement of a merchant bank with "funding in the bag" (again, my emphasis), to nothing.

4)
In July and again in September, we had certainty, or near certainty. In November, we now have: "then ATC and FNT will move to finalise discussions as soon as possible thereafter". So, have the discussions gone backwards, or what?

5)
In July, we had prospective 1st full year revenue of $210m and earnings of $27m. By September, this had been revised to $230m and NPAT of $27m. Strange, same profit figure, but different description, and more revenue. Could it be a declining margin projection? Today, nothing.

6)
Under the September announcement, $15m was payable by yesterday. With funding in the bag, this should have been a breeze. But what if funding was not in the bag, then it would need to be deferred, and an air of mystery maintained about it. With declining cash balances, and already 2x capital raisings so far this year, the kitty is starting to look a bit bare. So, no wonder they are scouting around for further opportunities. After all, in order to feed a ravenous appetite, more food /money needs to be obtained. Sorry, Yanlin, but the smell of Qintex is starting to get to me on this one (and a certain tilt at MGM).