Posted on: Saturday, November 6, 2004
Verizon bid raises new issue
By Sean Hao
Advertiser Staff Writer
The proposed buyer of local phone company Verizon Hawaii is seeking federal approval to boost the allowable foreign investment in the deal to a maximum of 47.2 percent.
The Communications Act of 1934 limits foreign investment in U.S. broadcasters and telephone carriers to 25 percent. However, Washington, D.C.-based The Carlyle Group has asked the Federal Communications Commission for permission to exceed that ceiling to complete its $1.65 billion purchase of Verizon Hawaii. The FCC already has approved the deal, which is still under review by the Public Utilities Commission.
In its application filed last month, Carlyle argued that foreign investors would have no control over day-to-day operations of Paradise MergerSub, the entity Carlyle created to acquire Verizon Hawaii. Most of the investors would come from World Trade Organization partner countries and individually would hold relatively small ownership stakes.
"The investors in all our funds are passive investors," said Carlyle spokesman Chris Ullman. "They have no voting right. They entrust their money with us and Carlyle as a U.S., Delaware-based corporation, makes an investment decision."
Foreign investment in Hawai'i utilities isn't new. The Gas Co., which produces and sells natural gas statewide, is owned by Singapore-based K1 Ventures Ltd. However, Carlyle's request could incite further concern about its ties to Middle East investors, which was raised most recently by Michael Moore's movie "Fahrenheit 9/11," as well as in oral and written testimony submitted to the PUC.
"I can see how this might fuel those concerns and I understand that," said consumer advocate John Cole. "But because there's some foreign investment, doesn't mean a detriment to rate payers."
"It shouldn't make a difference in our financial analysis and whether it would hurt consumers."
For Tom Shimabuku, a 71-year-old retired insurance agent in Kailua who has followed the merger plans, the potential effect of the sale on rates is his biggest concern. Carlyle has said it plans to keep rates the same, but cannot guarantee they won't rise.
Shimabuku also said he would be concerned if foreigners were to end up controlling Hawai'i's largest telephone company.
"Are they friendly to our cause? That's what I am afraid of," he said.
About $400 million of Verizon Hawaii's purchase price would come in the form of an equity investment with the bulk of that money coming from the Carlyle Partners III, $3.9 billion U.S. buyout fund. The fund's investors include hundreds of people who primarily reside in the United States, but also hail from Asia and Western Europe.
Ten percent of the investment in Verizon Hawaii would come from Hawai'i-based investors, including Walter Dods Jr., who is retiring as chief executive officer of BancWest Corp., and its subsidiary, First Hawaiian Bank.
Overall, less than 2 percent of Carlyle's investor money comes from the Middle East, Ullman said.
Likewise, as a pubic company Verizon Communications Inc. is owned by a global group of investors that includes Frankfurt, Germany-based Deutsche Bank AG and Paris, France-based BNP Parabis Arbitrage.
In making its request to the FCC, Carlyle cited several instances where deals involving greater foreign investment and control received the agency's blessing. FCC spokesman Mark Wigfield said the level of foreign investment in U.S. broadcasters and common carriers has come under greater scrutiny since the Sept. 11 terrorist attacks.
However, it's less of a concern when foreign investment comes from WTO countries, he said. Less than 2.2 percent of Paradise MergerSub's ownership would be from individuals residing in non-WTO countries, according to Carlyle.
"Generally we won't deny mergers on that basis," Wigfield said, referring to the level of foreign investment. "To stop it we need to find that more than 25 percent foreign interest is not in the interest of competition."
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
