SP Telemedia to merge with TPG

SP Telemedia (ASX: SOT), the telecommunications company that trades as SOUL, is delighted to announce a proposed merger with the TPG group, one of Australia's leading internet service providers. This transaction will expand SP Telemedia's customer base and network footprint and will be earnings per share accretive upon completion.

TPG, founded in 1986 by its CEO David Tech, who will become executive chairman of SP Telemedia, provides dial-up, ADSL and ADSL2+ internet services to consumers and small businesses. Its FY2008 revenue is forecast to be $144 million, with EBITDA of $49 million and after-tax profit of $29 million. TPG has more than 200,000 broadband customers and its own network, with 238 DSLAMs, and the merger will provide significant opportunities for capital and operational cost savings.

The merger is to be effected through the acquisition by SP Telemedia of TPG Holdings Limited for an acquisition price of $150 million in cash, to be funded through debt, plus 270 million SP Telemedia shares. Completion of the acquisition is expected in April 2008. On the basis of SP Telemedia's most recent closing share price of $0.35, this will represent an enterprise value of approximately $230 million and a FY2008 PE multiple of approximately 8.5x.

Before amortisation and synergies, the combined group, including four months contribution from TPG, is expected to achieve revenue of $469 million, with EBITDA of $52 million and after-tax profit of $20 million for FY2008. For FY2009, revenue is expected to be $607 million, with EBITDA of $108 million and after-tax profit of $48 million, also before amortisation and synergies. These figures do not include contributions by Chariot Limited (see below).

The combined group will have one of the largest DSLAM networks in Australia and will be one of Australia's most profitable telecommunications companies in terms of profit margin.

In addition to the benefits from combining the SP Telemedia and TPG networks, there will be opportunities to increase network traffic, bundle and cross-sell both companies' products, rationalise rented premises, and reduce personnel and administrative costs. Access to TPG's DSLAMs will also reduce SP Telemedia's capital expenditure as its customer base expands.

TPG owns 70.25 percent of Chariot Limited (ASX:CTI), a listed internet service provider with a market capitalisation of $9 million. Assuming SP Telemedia shareholders approve the acquisition of TPG at a meeting to be held in April 2008, SP Telemedla intends to make a scrip offer for the remaining 29.75 percen tof Chariot at a price to be determined by an independent expert.

SP Telemedia also announces its intention to pay a fully franked special dividend (incorporating the interim dividend) of 2.4 cents per share on 22 May 2008 to shareholders on the register at 17 April 2008. This special dividend, which SP Telemedias board intends to pay only if the transaction is approved by shareholders, will not be paid on shares issued as consideration for TPG.

Shareholders will be asked to vote on the proposed merger at a general meeting expected to be held in April 2008. An independent expert's report willbe commissioned to report to shareholders on the proposed merger.

Washington H Soul Pattinson, which currently owns 46.3 percent of SP Telemedia, has advised SP Telemedia that it supports the proposed merger and intends to vote in favour of the transaction, which will dilute its share holding to 27.7 percent. Following the merger, interests associated with Mr David Teoh (TPG founder and CEO) will own approximately 38.7 percent of SP Telemedia and Mr Tech will assume the position of executive chairman of SP Telemedia. Mr Teoh will appoint a second director to the SP Telemedia board, which will comprise 5 directors in total following the completion of the merger.