Posted on: Saturday, February 26, 2005
Carlyle gains in effort to buy Verizon Hawaii
By Sean Hao
Advertiser Staff Writer
The federal government will allow the proposed buyer of Verizon Hawaii to boost the level of indirect foreign investment in the deal, which leaves just one hurdle facing the $1.65 billion sale of the state's major phone company.
Verizon Hawaii suitor The Carlyle Group still needs state Public Utilities Commission approval, which is expected by the end of March. In anticipation of a favorable PUC ruling, Washington, D.C.-based Carlyle already is looking for immediate hires for at least 17 managerial positions in finance and wireless communications.
Global equity group Carlyle asked the Federal Communications Commission in October for permission to boost the allowable foreign investment in the deal to a maximum of 47.2 percent. Late last month the FCC granted Carlyle's request.
"The final hurdle is the PUC approval," Carlyle spokesman Chris Ullman said yesterday. "Then, of course, the transition and owning the company would be the next hurdle, but a good hurdle."
The Communications Act of 1934 limits foreign investment in U.S. broadcasters and telephone carriers to 25 percent. Carlyle argued that foreign investors would have no control over day-to-day operations of Paradise MergerSub, which would be the parent of Verizon Hawaii.
"I think the key here is the owners and decision-makers are the same in the end, which is The Carlyle Group and our investors are passive," Ullman 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.
Up to 10 percent of the equity investment in Verizon Hawaii would come from Hawai'i-based investors, including Walter Dods Jr., who is chairman of the board of BancWest Corp. and First Hawaiian Bank.
As Carlyle seeks PUC blessing of the sale, the investment group continues to fill key management roles under the assumption the deal will go through.
"Otherwise we would be behind the curve," Ullman said. "We do anticipate a decision very soon."
If approved, Verizon Hawaii would be renamed Hawaiian Telcom. Upon PUC approval, a closing of the sale could take 30 days to 60 days, after which operations would transition from Verizon to Carlyle over a nine-month period.
Carlyle has said it does not plan to raise telephone rates for at least 10 years and will increase local employment as operations now done by Verizon on the Mainland — such as information technology, management, legal and human resources — are brought to Hawai'i. Verizon Hawaii has about 1,700 employees.
Carlyle has requested the PUC approve the deal by the end of March; however, the agency is not required to render a decision by that date.
"They're still deliberating and I'm not sure when the order will come out exactly," said Catherine Awakuni, a commission counsel.
The proposed transaction between Verizon Communications and Carlyle includes Verizon Hawaii's local telephone operations and print directory, long-distance and Internet service provider businesses, but excludes Verizon Wireless.
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
