TSTT acquires Massy Communications

The industry was abuzz today when Massy Communications and TSTT signed a Share Purchase Agreement (SPA), in which TSTT will purchase 100% shareholding of Massy Communications Ltd. Last time we had this excitement was when 51% of GreenDot was acquired by One Caribbean Media. Let me start off by saying I believe the TT$ 255 million to be a fair price based on my calculations. This is all part of TSTT's 5-year strategic plan which speaks to transforming the company into an Agile Broadband Communications Company (ABCC) utilizing both organic and inorganic growth strategies.

So let's get down to the nitty-gritty and examine potential outcomes and other matters

Option 1 - Vehicle to facilitate organization transformation

So you need to transform your organization from a legacy entity to an ABCC. This presents an opportunity for TSTT to do the same by making this the model organization (keep it separate) and the company determines when and how individuals, business units etc move into the future state org. By the way, the future state from an outside plant perspective will be fiber (which was a decision some exec made back in 2013 ). Tied to this will be some level of rebranding most likely similar to what was done by Digicel - Digi Mobile vs Digi Play. I can only assume other options were analyzed such as what transpired at BWIA and found not palatable at his time. 

Option 2 - Integrate into existing "legacy" operations

Massy Communications lost TT $40 million in 2016. So it means that something has to be done quickly to get this profitable. This could lead to rationalization of duplicate resources. eg. Call Center resources, Infrastructure (buildings, Inside & outside plant) etc. The company will obviously be mindful of what assets it can impair as Massy's assets would have been commissioned less than two years. However, this also presents an opportunity for TSTT,  who are seeking to rip out their legacy OSS/BSS. Depending on what Massy has in place it may enable TSTT to get ahead of the curve with its implementation. 

Option 3 - Combination of Option 1 & 2

Industrial Relations

The Recognized Majority Union will seek to engage the executives and board if option 2 or 3 are selected and certainly draw to management's attention Article 1.3 of the existing collective agreement which states"All provisions of the Agreement shall be binding upon the successors or assigns of the Company and the Union. In case of a consolidation or merger, representatives of the Company and the Union shall meet without delay and negotiate suitable provisions for the protection of the employees’ seniority, service, benefits and other interests". This may have longer-term implications on wages and salaries as a % of total opex. Note wage bill is approximately 45% of total opex.

If option 1 is selected the union will certainly pursue recognition seeing that the RMU has recognition for Borde Communications (Illuminat).

What happens to the 49%

Source: Massy 2016 Annual Report 

Massy was rumored to be the front-runner in acquiring the 49% shareholding in TSTT that is owned by Cable and Wireless. A colleague of mine said it is too much of a stretch for Massy seeing that their share price took a hit for 2016. But in my humble opinion with a debt to equity ratio of 32 percent and a strong cash flow and cash position, I would not rule out a sale and buy-back agreement in the medium term. As Massy should see telecommunications as a significant pillar and key to achieving its long term goals. Whether they own a piece, all or none is another story but time will tell. Who knows maybe the end game is to transform TSTT into a regional operator.

Editor’s note: The views expressed in this commentary are those of the writer, who is communicating in his personal capacity. All commentaries seek to provide personal analysis and interpretations of telecommunications themes in the Domestic, Regional, and International markets.