Pacific Internet Saga Continues
Posted on May 26, 2006
Today Pacific Internet’s (PCNTF) board and management finally released the recommendation of the Independent Directors of PCNTF and the opinion from KPMG Corporate Finance to the Independent Directors, as regards to MediaRing’s offer to purchase Pacific Internet’s shares at $8.25.
If you are a shareholder of Pacific Internet, I encourage you to read the full SEC filing, available by clicking here. In this post, I have summarized some of the key findings. KPMG’s analysis is quite interesting, since it gives a very good basis, and an excellent valuation lesson for that matter, for determining the future value of Pacific Internet, as well as, other Internet-related shares that I follow on this blog (e.g. IIP, WWWW).
Board Opinion:
"The Board, after careful consideration, including a thorough review of the Offer, the opinion of the IFA and the advice from the Company’s other advisers, has unanimously determined at a meeting duly held on 22 May 2006 that the Offer is inadequate and not in the best interests of the Shareholders. The Independent Directors recommend the Shareholders to REJECT the Offer of MediaRing."
KPMG’s Opinion:
"We note that the implied enterprise value to earnings before interest, tax, depreciation and amortization (“EV/EBITDA”) multiple of PacNet, calculated using the Offer Price is 6.8 times. This multiple is at a discount of approximately 39.8% of the median traded EV/EBITDA multiples of the internet protocol based communications service providers within the Peer Group and these median traded multiples have not been adjusted for any premium for control that is typically paid in the acquisition of a significant controlling stake in a target company. The discount to the Peer Group would have been significantly greater if such premium were to be taken into consideration. Therefore, the valuation statistics implied by the Offer Price do not compare favourably to the median of the traded valuation statistics of the Peer Group and thus appears to undervalue the Company."
"We note that PacNet’s implied EV/EBITDA multiple of 6.8 times is at a discount of approximately 54.4% to the median implied EV/EBITDA multiple of past Comparable Transactions. The valuation statistics implied by the Offer Price do not compare favourably to the median of the valuation statistics of the Comparable Transactions and thus appear to undervalue the Company"
KPMG Peer Group Analysis:
In addition to the above analysis which implies a median multiple of 11.3X EV/EBITDA for IP-Based CSP’s, KPMG provided other data showing that non-US and non-European IP-Based communication service providers trade at a median multiple of 8.4X EV/EBITDA. In addition, recent transactions for IP-Based CSP’s were done at a median of 15X EV/EBITDA. So the potential range of multiples for PCNTF is from 8.5X to 15X.
Summary
Based on the analysis of KPMG, which I consider quite good, and based on my analysis of Pacific Internet’s recent earnings report, I’m holding on to strong my shares of Pacific Internet. I believe that this
acquisition story is just heating up and most importantly the downside appears low here,
given the firm offer of $8.25. On the upside, it seems clear from the valuations set forth by KPMG, that even assuming no significant growth, Pacific Internet is worth between $10-$12 per share.
Please Note: I first recommended Pacific Internet (PCNTF) at $7.60, and still hold a position in the
stock. All ideas, opinions, and/or forecasts, expressed or implied
herein, are for informational purposes only and should not be construed
as a recommendation to invest, trade, and/or speculate in the markets.
Any investments, trades, and/or speculations made in light of the
ideas, opinions, and/or forecasts, expressed or implied herein, are
committed at your own risk, financial or otherwise.
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This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
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