Providence in two way race for TIM Hellas

Providence Equity Partners and Turkish mobile phone operator Turkcell are the only two bidders left in the race for Greek mobile phone operator TIM Hellas.

Big spender United Arabs Emirates-based trade buyer Emirates Telecommunications (Etisalat) pulled out of the auction leaving trade versus private equity in a two-horse telecoms race when binding bids were submitted late last week, according to a source familiar with the situation.

Turkcell had confirmed that it would submit an offer ahead of the deadline.

TIM Hellas is being sold by private equity co-owners Texas Pacific Group and Apax Partners, which have appointed investment banks Morgan Stanley and Lehman Brothers as advisers on the sale, which could fetch anything from €2-3bn.

The last-minute decision by Etisalat not to bid, however, will have come as something of a blow to the sellers.

Not only was the decision unexpected, but Etisalat also has a deserved reputation as an aggressive bidder. In 2005, a sealed auction for a 26% stake in Pakistan Telecommunications Company Ltd (PCTL) saw Etisalat win with a US$2.6bn bid, 85% or more higher than rival bids by China Mobile of US$1.4bn and by Singapore’s SingTel of US$1.16bn. The UAE bidder also offered 20% more than its nearest rival in the US$2.9bn auction of a third Egyptian mobile telephony licence earlier this year.

Etisalat chairman Mohammad Omran pulled out of the Greek race, however, claiming the expected price would be too high, and perhaps doubtful that the aggressive high growth strategy it has rolled out in developing Middle Eastern and African markets could transfer to as saturated and mature a mobile market as Greece.

Despite the lost bid, the sale of TIM Hellas has certainly not been forced on its private equity owners. Apax and Texas Pacific acquired the business in 2005 and have already taken out a dividend from an initial recapitalisation. The decision to sell was made in response to interest from trade buyers in the Middle East, rather than originating with the owners.

If the auction fails to reach the bar in terms of price, Texas Pacific and Apax have already put in place plans for a second recapitalisation, in effect running a dual-track strategy that has pitched bidders against the returns of a possible dividend recap.

That strategy highlights the extent to which private equity sponsors now see the dividend recap as a viable exit strategy, alongside M&A sales and IPOs.

Texas Pacific and Apax bought an initial 81% stake in TIM Hellas in April 2005 from Italia’s Telecom Italia Mobile in a US$1.4bn deal, which was followed in June 2005 by the US$319m acquisition of the remaining 19%.

Providence Equity Parters is headquartered in Providence, Rhode Island and focuses on investments in media and telecommunications.

It manages funds with over US$9bn in equity commitments and has invested in more than 80 companies operating in over 20 countries since it was set up in 1991.

Significant investments include VoiceStream Wireless, Metro-Goldwyn-Mayer, Warner Music Group, PanAmSat, AT&T Canada, eircom, Casema, Kabel Deutschland, Telcordia Technologies, Language Line, F&W Publications, ProSiebenSat.1, and Bresnan Broadband Holdings.