This was published 7 years ago
TPG savaged in $1b sell-off after mobile network plans revealed
By Patrick Hatch
TPG shareholders have delivered a brutal verdict on its almost $1.3 billion splurge buying up 4G mobile spectrum to build a new mobile network wiping one-fifth from the company's share price in a single day.
The broadband internet and mobile provider last week agreed to pay $1.26 billion for a chunk of the nation's 4G mobile spectrum and revealed it would spend another $600 million building a mobile network to rival those operated by Telstra, Optus and Vodafone.
TPG entered a trading halt last Wednesday, prior to the announcement, and detailed a $400 million share entitlement offer to fund construction of the new network.
Upon returning to trade on Tuesday morning, TPG shares plunged immediately. From a close of $6.54 per share before it entered the trading halt, TPG shares had dived to $5.42 by midday Tuesday - a drop of 17.8 per cent - before closing at $5.50. Over one billion dollars was wiped from TPG's market value, falling from $5.54 billion to $4.42 billion.
TPG shares have been savaged. Credit: Rob Homer
TPG shares hit an all-time high of $12.60 in July last year.
The company said on Tuesday it had completed the institutional offer, raising $81.5 million in addition to $238 million tipped in by chief executive David Teoh and other major shareholder investment house Washington H. Soul Pattinson.
"We are very pleased with the strong support that our institutional shareholders and new investors have shown for the offer and for our mobile strategy, which we are tremendously excited about," Mr Teoh said in a statement.
TPG launched the retail component of its entitlement offer on Tuesday at $5.25 per new share.
Telstra also fell another 3.8 per cent to $4 on Tuesday, after dropping to their lowest level in five years last week on fears TPG revealed it would bring new competition to the market. The nation's largest telco's shares have fallen over 12 per cent since last Tuesday.
Deutsche Bank said the $1.2 billion price tag TPG paid for the spectrum it will use for its network was "well ahead of our expectations" and that it would be difficult for TPG to maintain a net present value from the investment.
Other obstacles to TPG being successful in its own network included "the potential risks of greater difficulty in bundling mobile and broadband services, lack of physical store fronts and operational execution given the company is undertaking many initiatives concurrently," Deutsche Bank analyst Craig Wong-Pan said in a note to clients.
UBS said it thought TPG could succeed as a fourth player in the market but might have to launch a price war, which would crunching industry earnings, in order to grow market share.
The net impact of raising equity and building the network would hit earnings per share by about 40 per cent in 2019, and would break even by 2020, UBS told clients.