10th August 2007
The 
Melita Cable was sold by its
founding private shareholders to an international private equity fund for a
total enterprise value of EUR167 million.This has been used by the opposition as a benchmark to prove the government’s incompetence in privatising two of
As Melita Cable and Mid-Med operate in totally different sectors, direct price comparisons would be technically incorrect. Few doubt however that Mid-Med was sold so cheap and this was clearly reflected in the share market price developments in the immediate months following privatisation. One does not really need benchmarking to a sale of a private company in a different sector eight years later to prove that Mid-Med Bank’s privatisation was a bad deal, from the price point of view, for the Maltese taxpayer.
Benchmarking the sale of Melita in 2007 to Maltacom’s 60 per cent sale to Tecom of Dubai in 2005 is appropriate as both companies operate in the telecoms/media sector. Furthermore, the respective transactions were separated only by a rather short time of two years.
Melita is a private company so one does not get access to the same detailed financial information published by Maltacom as a publicly quoted company. It is therefore difficult for analysts to make a detailed technical comparison. But
Melita was sold for EUR167 million enterprise value whereas Maltacom was sold for EUR365 enterprise value. In simple terms Maltacom, with all its subsidiaries was, sold for an enterprise value just a whisker above twice the enterprise value of Melita.
Melita is miniscule in comparison to Maltacom by all plausible measures. By turnover, by profits, by customer base, by asset base, by liquidity, and by any criterion one dares to choose, Maltacom towers over Melita.
What is the reason therefore that Melita shareholders realised a price far better than that realised by the government in passing majority control in Maltacom to Tecom even though the process of Maltacom’s privatisation was far more diligent and transparent compared to that of Mid-Med Bank?
How is it that miniscule Melita realises nearly half the value of towering Maltacom when Maltacom has an extensive fixed line legacy network that under efficient management could make a serious challenge to Melita’s core competency in media network services, and Maltacom has a very successful mobile telephone operation which Melita can only dream of?
As always there is probably a multitude of reasons. Certainly timing matters. The difference between fresh crisp salad and trash is timing. 2005 was not exactly an ideal time to sell a telecom company. History shows that in 2005 all business sectors registered substantial growth in their international share prices. The only exception was the telecom sector, especially fixed line legacy companies, which were being challenged by competition from mobile operators and media companies.
Events turned significantly in 2006 as legacy telecoms continued to return high operational cash flows and developed business plans to use their fixed line legacy networks to offer media services.
However, I think that the main reasons for this very unfavorable turn of events for Maltese taxpayers as vendors of the country’s investment in Maltacom, is that the government did pretty next to nothing to polish and burnish the asset to ensure it gets the best possible price for this prized investment.
How should have Maltacom been polished and burnished you are probably asking? Principally by doings two crucial things.
Firstly by floating on the market a minority shareholding of its most valuable investment in Go Mobile in order to give a market value to this subsidiary which was still shown in Maltacom’s books at ridiculously low historical cost.
And secondly by restructuring the company and getting it into shape prior to selling it. By selling Maltacom in a state of substantial overmanning and inefficient cost platform, the government shot itself in the foot as it depressed the enterprise value in the eyes of bidding contenders. If the government had had the courage to streamline Maltacom operations it could have obtained a price for Maltacom in more appropriate multiples of that obtained by Melita, properly reflecting its true potential enterprise value.
You don’t sell a second hand car with dents and scratches as surely you don’t get the best value for it. The government sold Maltacom full of dents and scratches and without polishing those elements which like Go Mobile were shining stars in their own right.
To avoid the temporary pain of restructuring we are forced to suffer the pain of selling our prized assets at sub- market value. Melita’s shareholders, to their credit, did not do that.
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