For Sale: Slightly Used Assets


By Margo McCall
May 21, 2001
Wireless Week

Consider it akin to a corporate garage sale. Just as homeowners use spring as a chance to clear their garages of broken lawnmowers and kids' old bikes, companies are using the slowing economy as an opportune time to clear their books of unneeded assets.

"For sale" signs are going up everywhere in the wireless industry, from Motorola's sale of its international cellular properties to Lucent's off-loading of its optical unit and some factories. The buzzword these days is monetization, be it to pay off debt or build up cash for expected tough times ahead.

Even the regional wireless carriers are getting into the act. Rural Cellular Corp. is putting its Saco River incumbent local exchange carrier on the block, as well as its entire portfolio of 300 towers, to trim down debt. US Unwired Inc. and SBC Communications Inc. are among the carriers that also have sold off towers.

"People are doing it for different reasons, but mostly it's a matter of focusing on core businesses and maintaining flexibility," says Brad Busse, COO of Daniels & Associates, a Denver-based limited partnership that assists with mergers in the cable and communications industries. "Whenever you get into a slowing business cycle, everybody takes a harder look at the portfolio of assets they have."

But companies aren't parting with family treasures. Instead, they are selling the assets deemed nonstrategic or not a part of the company's core business. In some cases, the sales are part of a broad restructuring. In other cases, companies need to reduce debt or raise funds amid cooling capital markets.

Even NTT DoCoMo–purveyor of the mega-successful i-mode service–is looking at the current value of its $14.7 billion in overseas investments.

Motorola began its campaign to divest its interests in cellular operating companies earlier this year. The second-largest handset maker, which is in the midst of a restructuring that will reduce its headcount by 26,000, raised $1 billion by selling its interests in Brazilian carrier Global Telecom, Israel's Pelephone, MobilNil of Egypt, Jordan's FastLink and Pakinstani carrier Mobilink. The windfall occurred almost by accident. Motorola had planned to hold a public offering of the properties under a subsidiary to be called Propel Inc., but purchase offers began pouring in after Motorola publicized its ownership of the properties in a Securities and Exchange Commission filing.

Perhaps buoyed by that success, COO Bob Growney advised analysts during the company's first-quarter earnings call that it plans to sell other nonstrategic assets as well. A deal with Spanish supercarrier Telefónica to buy Motorola's interests in four cellular companies in Northern Mexico is expected to close in the next quarter or so. Motorola also has interests in cellular properties in Argentina, Azerbaijan, Honduras, Korea, Lithuania and Uruguay.

Finnish communications company Sonera sold 3.3 million, or 17.5 percent, of its VoiceStream Wireless Corp. shares to Deutsche Telekom as part of an agreement hatched last July. The $360 million raised through the sale will help Sonera pay off debt. The Finnish company still holds shares in VoiceStream and Powertel Inc. that are currently worth about $2.4 billion. Deutsche Telekom has agreed to buy those shares in the months to come in an arrangement that will net Sonera another $320 million in cash, as well as Telekom stock that can later be liquidated.

Like other European carriers, Sonera paid dearly last fall in spectrum auctions for 3G licenses. Spokesman Steve Fleischer says liquidating the shares will allow Sonera to pay off more than half its debt for UMTS joint ventures outside Finland.

Sonera–whose zed mobile Internet service was recently introduced in the United States–is not the only European carrier trying to raise money. To help relieve pressing debt of $43 billion, British Telecommunications plans to spin off its wireless unit.

Spinoffs to reduce debt aren't restricted to the other side of the pond either. Lucent recently spun off Agere Systems, its semiconductor unit, to cut its debt by $2.8 billion, and AT&T Corp. will use some of the proceeds from its AT&T Wireless spinoff to reduce its debt that reached $65 billion as of late last year.

So who is buying out there? Motorola sold its interest in Global Telecom to the company's Japanese stakeholders, its interest in Pelephone to Shamrock Holdings, its stake in MobilNil to France Telecom, and its share of FastLink and Mobilink to Cairo-based Orascom, an industrial conglomerate with a wireless division.

Contract electronics manufacturers such as Flextronics International Inc., Celestica and Solectron Corp. are being bandied about as possible buyers of Lucent's Oklahoma City switching facility, which employs 4,000 workers, and its Columbus, Ohio, wireless equipment plant, which has a work force of 5,300. Celestica bought Motorola plants in Dublin, Ireland, and Mount Pleasant, Iowa, for $70 million late last year, and SCI Systems Inc. bought an Ericsson handset plant in Lynchburg, Va.

John Sanders, a principal with Bond & Pecaro, a Washington, D.C., firm that establishes valuations for companies, says, in general, now is not a great time to sell a business. But there certainly are exceptions to Sanders' rule, mandated by the laws of supply and demand. For example, towers reportedly are still commanding premium value, Sanders says, because they are viewed as a scarce resource.

Carriers could also go the route of ridding their balance sheets of lines, antennas and base stations. "People are always looking for cheaper ways to access capital," says R. Clayton Funk, managing director of towers for Kansas City-based Nations Media Partners.