Home' Trinidad and Tobago Guardian : November 13th 2014 Contents NOVEMBER 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COVER STORY | BG5
At webcast for telecom analystsin London last Thursday,
CWC chief executive Phil Bentley said:
"Can we reverse the deflationary pricing trends? All I will
say to that is let's see."
Q: By referring to "reversing deflationary pricing trends,"
was Bentley signalling to CWC's shareholders (through the
analysts) that in countries/services where there is less com-
petition, the company expects to raise prices to match or
A: Responding on behalf of CWC, Jamaican business
executive Chris Dehring, who is the company's head of gov-
ernment affairs and chairman of LIME in Jamaica, said: "The
strategy is all about increasing revenues. When we speak about
deflationary pricing trends, it is in the context of how we grow
revenues, given all the investment that we are putting into
the Caribbean." Dehring said the specific focus was on increasing
revenue per customer by offering them a suite of services. He
said there was no country in which CWC operates where there
is less competition. And he said CWC's major competitor is
"far larger than we are. There is very stiff competition in every
market in the region."
Q: Throughout the presentation, Mr Bentley referred to
the transaction resulting in significant operating and capital
expenditure synergies, which he estimated to total US$700
million (net present value).
How many employees are going to be retrenched as a result
of the merger?
A: Dehring responded: "It is far too early to say. None
of the detailed planning has taken place. Even if there are
redundancies, the opportunity is to grow and that is the intent.
Growing companies higher more people. Much of the redun-
dancies have been outsourcing. Insourcing is under active
Q: In the webcast, the CWC CFO says, in response to
a question, that the transaction would result in "very little tax
synergies out of the gate. We would have to work on that
going forward." Bentley then says, turning to Brendan Paddick,
the CEO of Columbus: "Brendan, your business is domiciled
in Barbados where you don't pay tax because of all the invest-
ments you have been making. But we do pay tax in Barbados.
So how we optimize is something that we really have to think
Does this mean that an enlarged CWC will be working to
minimize its taxes throughout the Caribbean after the transaction
A: CWC has a very strong and unblemished track record
of paying its taxes. We pay our corporate taxes and we are
good corporate citizens. It is part of a company's responsibility
to optimize its tax structure, especially because we operate
across so many jurisdictions, you could find yourself getting
in trouble if you don't put in place the right type of tax
structures that ensure you pay the right amount of taxes for
your business. If we are paying the requisite amount of taxes,
it frees up money to invest and if you can invest to grow that
frees up money for employment. That's how the system works.
You have to generate revenues and profits to hire more people
and generate more taxes.
Jamaica-born billionaire Michael Lee Chin sold the 13 per
cent stake in Columbus International held by a fund managed
by his Portland Private Equity firm for US$240.5 million rather
than accept shares in Cable & Wireless Communications
(CWC) in last week's mega deal.
CWC last Thursday announced that it was purchasing 100
per cent of Columbus for US$1.85 billion and that it was
assuming the cable company's US$1.17 billion in net debt.
CWC is paying the Columbus shareholders US$707.5 million
in cash and is issuing 1.55 billion new CWC shares at a price
of US$0.73 a share to the three main, selling Columbus share-
holders, totaling US$1.85 billion.
Lee Chin's private equity firm, AIC Caribbean, was the only
significant Columbus shareholder that did not accept the
CWC offer receive payment for the Columbus shares in CWC.
Lee Chin's firm sold its 13 per cent stake for 100 per cent
cash, while founders John Risley and Brendan Paddick opted
to take one-third cash and two-thirds CWC shares. Cable
investor John Malone chose 100 per cent shares.
Among them, four Columbus investors owned 97.8 per cent
of the cable company.
The three Columbus shareholders who accepted shares
• founder John Risley---owned 53.2 per cent (2/3 shares);
• John Malone---owned 23.2 per cent (all shares)
• CEO Brendan Paddick---owned 8.5 per cent (2/3 shares).
Lee Chin, whose firm owned 13 per cent, opted to take all
The new CWC shares assigned to the three Columbus share-
holders give them a 36 per cent stake in the enlarged CWC.
The original stake of about 20 per cent of Columbus was
acquired by the Portland Equity Fund in December, 2006 for
a deal value of US$65.5 million.
The sale of 13 per cent of Columbus for US$240.5 million
means that the Portland group enjoyed a capital gain in excess
of US$175 millionon its initial investment "and it is actually
a bit better than that since we received dividends and sold
some of our shares along the way," said Robert Almeida, Lee
Chin's right-hand man in the Caribbean, on Monday.
The three Columbus shareholders who accepted the CWC
shares have agreed to a lock-up arrangement that prevents
them from selling any of their shares until May 2016, according
to one of the slides at last Thursday's presentation to analysts
on the acquisition by CWC.
The shareholders then have a two-week window following
the release of results in May 2016, 2017, 2018 and 2019 to put
a quarter of their holding in each year to CWC at the issue
price of US$0.73 a share.
Explaining why Lee Chin opted to take cash for his 13 per
cent stake, Almeida said that the AIC Caribbean Fund is a
US$225 million closed-end fund that was established in 2007
with a ten-year life span. That means that the fund is due
to be wound up in 2017.
If the private equity fund had taken CWC shares as payment
for the sale of its 13 per cent stake, the fund would have had
its stake locked up until May 2016 and then would only have
been able to dispose of 25 per cent of its stake in that month.
Almeida said that Columbus has proven to be "a very good
investment over the years which has allowed the fund to do
well for its investors while doing good for the region as access,
cost and quality of broadband have all dramatically improved
and this, in turn, has facilitated the growth of call centers,
business process outsourcing and created the potential for
many other ICT strategies."
The original stake of about 17 per cent was acquired by the
Portland Equity Fund in December, 2006 for a deal value of
US$65.5 million. This means that the 13 per cent stake has
generated a capital gain of at least US$175 million "and it is
actually a bit better than that since we received dividends and
sold some of our shares along the way," said Almeida.
The profits from the sale of the stake will be distributed
to the fund's investors, including its principals who have a
beneficial interest of over 20% in the fund.
"Members of Portland Private Equity invested in Columbus
in 2005 through an earlier investment vehicle. At that time,
we secured an allocation from the company for the AIC
Caribbean Fund which had just begun fundraising," indicated
According to the Portland Private Equity website, in 2005,
Columbus' business was relatively simple as it was limited to
providing cable services to Bahamas. By the time of AIC
Caribbean Fund's investment in early 2007, the company was
starting to expand through executing a strategy that involved
rolling-up acquired key "wholesale and retail" broadband
assets throughout the region.
On the issue of the returns that the fund has experienced,
Almeida said while the specific returns on the Columbus
investment are confidential, the fund is on track to realize
average returns exceeding 25 per cent across all its invest-
Columbus was the fourth of six investments that the fund
has exited. The other three are Advantage General Insurance,
Moya Construction in Dom Rep and World Food Group. The
remaining investments are Metro Country Club in DR and
Interenergy Holdings (an electricity company in the region).
Almeida said some of the investors in the original PE fund
were North American and regional pension funds, the Caribbean
Development Bank and other international institutions.
He said Lee Chin is organizing Portland Caribbean Fund II,
the first round of which collected US$100 million by July and
which is targeting US$300 million.
That fund is also looking to target six to eight investments
that have impact on the region and do well for investors.
Asked why did Lee Chin choose to invest in Columbus
nearly a decade ago when scores of investment opportunities
must have come across his desk, Almeida said:
"We look for three preconditions that are necessary for the
creation of wealth:
• Perception/Reality Gap---Wherever there is a difference
between perception and reality, there is an opportunity to
create wealth by seeing past the perception. The perception
of the Caribbean was that people didn't have landlines, personal
computers or cable television. Therefore, there was no demand
for broadband services. We knew the reality to be different.
• Inefficiency---Wherever there is inefficiency (company,
sector, country), there is an opportunity to create wealth by
making it more efficient, or at least less inefficient. The state
of the cable industry in the region was extremely inefficient
and the Columbus team had a plan to make it much more
• Dearth of equity capital---Wherever there is a dearth of
equity capital, each dollar of incremental equity capital is well
treated. The region has difficulty attracting equity capital
with debt being much more readily available.
"Combine these three preconditions with an inevitable
growth industry; smart, honest management; and an honest,
successful co-investing partner and we were instantly excited
at the Columbus opportunity. That is the same recipe we use
for all our investments."
Lee Chin sells Columbus
stake for US$240 mill cash
CWC responds on pricing, job cuts and taxes
Private equity guru Michael Lee Chin
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