‘Ringing in the New Year
01/19/2007 12:00 am EST
Globe-trotting adviser Nicholas Vardy--one of the leading experts on Asian economies and investments--has his eye on a Hong Kong telecom company who stands to see some handy profits from the bidding taking place for one of its holdings...
"The brainchild of Asia's top tycoon, Li Ka-shing, Hutchison Telecommunications International Limited (HTX NYSE), operates mobile telecommunications networks in Hong Kong, Macao, India, Israel, Thailand, Sri Lanka, Ghana, Vietnam, and Indonesia. Founded in 1985 and headquartered in Hong Kong, Hutchison Telecom is owned by Li Ka-shing's Hong Kong-based conglomerate Hutchison Whampoa.
"Hutchison Telecom's portfolio encompasses both highly developed and newly emerging markets. In developed markets like Hong Kong and Israel, Hutchison believes there remains significant growth potential in providing advanced, sophisticated services to technology-conscious subscribers. And emerging markets offer tremendous scope for future growth of even the most basic services.
"India is the apple in Hutchison's eye. Its vast population and very low penetration rate creates an enormous growth opportunity for affordable mobile services. Now that India has become the fastest-growing cellular market in the world, Hutchison has been approached by several potential bidders for its 67% stake in Hutchison Essar, India's fourth-largest wireless telecom. Li-Ka-shing knows that everything has its price and he also has a reputation for exiting his businesses at the top.
"Vodafone submitted an offer that valued the Indian subsidiary at $19 billion. The Indian group Essar, which holds a 33% stake in Hutchison Essar, offered Hutchison about $11 billion for the remaining stake in the company--a bid in the same ballpark as the Vodafone bid. Reliance Communications, India's second-largest wireless operator, also has thrown its hat into the ring by securing the backing of the world's biggest private equity groups.
"This is an amazing deal for Hutchison Telecom shareholders. Even after a run up of 56% this past year, Hutchison Telecom only has a market cap of $11.5 billion. With Vodafone valuing just the 67% stake of its Indian subsidiary at $12.7 billion, investors in Hutchison Telecom would be getting a mix of mature units in Hong Kong and Israel and high-growth operations in Thailand, Vietnam, and Indonesia essentially for free.
"Now these calculations don't account for debt in Hutchison Telecom. And Hutchison Telecom's management has not indicated what it would do with the proceeds. Finally, the deal is still far from done. Nevertheless, the current valuations being bandied about for Hutchison Essar are too attractive for us to pass up buying shares in the selling shareholder.
"Buy Hutchison Telecommunications International Ltd. (HTX) at market today and place your initial stop at $31.25. For potentially even bigger upside, buy the June $35 call options (HTXFG.X)."