people/swiftel deal in "the west australian"

People, Swiftel join in $50m deal

By Fran Spencer



PERTH-BORN data services provider Swiftel is set to be swallowed up by sales partner People Telecom after yesterday confirming the two would merge in a scrip deal worth up to $50 million.

Under the deal, flagged by WestBusiness on Wednesday, Swiftel will issue up to 420 million shares to acquire the privately-owned People Tel in a move the companies claim will create the seventh-largest telco in Australia by revenue.

Swiftel said the merged company would have more than 30,000 business and consumer customers nationally, bringing in total revenue of more than $110 million in the 2004-05 year.

The reverse takeover will hand People Tel's owners - directors Colin Marland, Ryan O'Hare, Barry Hamilton and Brendan Fleiter and Village Roadshow Investments - a 64 per cent stake in the merged entity, renamed People Tel.

The Swiftel name will be retained as a consumer brand for DSL, voice and mobile services.

Swiftel said People Tel's shareholders would be issued between 386.2 million and 419.4 million shares for their company, valuing the Sydney-based business at between $46.3 million and $50.3 million based on Swiftel's last traded share price of 12¢.

Swiftel chief executive and majority shareholder Chris Gale will step down from the board and take responsibililty for the merged company's data services division.

He will be replaced by Mr O'Hare, People Tel's chief executive, who already holds a stake of more than 2 per cent in Swiftel.

The deal also looks likely to significantly dilute Mr Gale's shareholding in the company he founded. According to Swiftel's latest annual report, Mr Gale holds a total of 28.8 million shares in the company, making him the majority shareholder with a 20.3 per cent stake.

The issue to People Tel could water that stake down to as little as 5 per cent.

However, Mr O'Hare yesterday denied Mr Gale was being sidelined.

"I suppose it would appear that way . . . (but) Chris Gale's experience and what he's done in Perth is exceptional," he said.

"I think (his stepping down) was something both parties agreed to do. We didn't want a board that was too large - Chris will be heavily involved in this organisation and it didn't make sense to have him distracted by board issues."

Mr O'Hare also rejected suggestions the deal represented a rescue package for Swiftel, which reported a net loss of $1.2 million for the half year to December 31.

"They're performing quite well - they did report an EBITDA loss in December, there's no question, that's public knowledge," he said.

"But . . . I think the success of Swiftel was inevitable in its own right. Its only downfall was the fact that it grew too fast for the company to manage itself."

Swiftel's announcement stated a capital raising may be necessary to complete the deal, but Mr O'Hare said that had all but been ruled out.

"The merged entity has something like $3 million or $4 million, so we don't need cash. People Tel is very profitable," he said.

Swiftel had brought less than $1 million of that figure to the table. However, Mr O'Hare said a capital raising may be considered post-merger to fund potential acquisitions.

The deal, which is subject to shareholder approval, is expected to completed by mid-May.