Telecom NZ on the prowl

Telecom New Zealand Limited (ASX:TEL) is rumoured to be negotiating a takeover with Amcom Telecommunications Limited (ASX:AMM), which would also net it iiNet. The speculation is that unofficial discussions have been occurring on an $A80 million deal since December 2006. A further rumour says Telecom NZ will purchase PowerTel (ASX:PWT), but the Amcom deal is seen as more likely. Telecom NZ does not need to rush any takeovers, as it anticipates $A2 billion in June 2007 from the sale of its directories business.

This could be a win/win situation for Telecom New Zealand. They are selling out of the directory business at a great price and they may be able to pick up a profitable company (Amcom) at a reduced price. Amcom is sitting on a price earnings ratio of 13 at the moment but this is sure to shoot up today given the speculation.

Telecom NZ itself is sitting on a deflated price earnings of 13 due to thoughts it has limited growth potential. It doesn't help that its debt, while reducing, is very large. The high debt puts any investment into this company risky.

Good Luck Investing.