Your points are well considered, but you must also consider the following: 1) financing such a bid for UEC would be easy for SGT (ie: whether it be scrip, cash or a mixture); 2) the same goodwill and amortisation considerations apply irrespective of the particular funding mechanism selected; 3) using scrip to pay out UEC would be easy on the cash, but just as much a drag on reported earnings (etc) for SGT going forward; and 5) the annual cost to SingTel of doing this would be much greater than $12.5M per annum.
SingTel's approach to amortising for Goodwill is for a maximum of 20 years, calculated on a straight-line basis, over the acquired entity's useful economic life, and adjusted for any impairment losses.
Already, on account of the Optus acquisition, SingTel has written down the carrying value of its acquisition by several Billion dollars.
SingTel's approach to amortisation is quite conservative (ie: leading to either rapid loss impairment recogniion, or accelerated amortisation charges on account of a shortened useful economic life).
For SingTel, even a 10-year amortisation exercise regarding UEC would equate to a $25M ongoing annual charge to the P&L.
So, for starters, unless the EBITDA number can exceed $41.4M on a recurring basis, without adding back any Future Tax Benefits, any acquisition price at, or above $250M, will lead to increased red ink for SingTel for the next 5+ years.
The $41.4M number is derived from the following amounts which will need to be covered off in the EBITDA line: 1) I = $4.4M on $55M borrowed @8.0%; 2) D = $12M on $149M FY02 P&E at a consolidated depreciation charge of 8% across all asset classes; and 3) A = $25M on $250M scrip based acqusition amortised straight-line over 10 years).
Whilst its fair to say that the I and D properly remain the responsibility of UEC, whilst the A comes through to SingTel, the fact remains that any proper commercial appraisal of UEC by SingTel must equally account for all of these amounts on a transparent basis.
So, even if you can assume a bottom line contribution by UEC, before tax, of $25M, the final, all up result for SingTel on a consolidated basis will be $nil at the before tax line, and quite possibly, negative on the after tax line (ie: depending upon the particular treatment metered out to FTB, etc).
Now, just looking at UEC in isolation, to getto $25M before tax would require a $41M+ EBITDA contribution on a recurring basis. Even using a 40% gross margin approach, this would require annualised revenues for UEC going forward of $100M+ (or $125M+ at the 1/3 margin contribution level).
To get to this would require additional considerable CAPEX spending, probably of the order of another $40-60M (minimum) which is over and above current CAPEX commitment levels.
So, both the I and D lines would need to increase further, meaning that to deliver a bottom line positiove contribution to SingTel, going forward, UEC must be capable of delivering >$50M EBITDA on a recurring basis (balanced against modest forward CAPEX commitments).
You may well be right that SingTel is looking for more than cost savings (ie: strategic fit, competitive considerations, etc), but unless the pricing mix (irrespective of funding source) is right, then a purchase price which is at, or above, $250M for SingTel, will prove decidely negative to the P&L account, going forward.
SingTel has already made its mistake with paying way over the odds for Optus (even on a scrip basis). It's not now going to repeat the same thing again with acquiring UEC.
I, therefore, continue with my belief that unless the numbers can result in a positive payback to SingTel in <5 years, then SingTel will not proceed with acquiring UEC.
At or above a $250M acquisition price, I cannot see how a 5 year payback period can be achieved.
