$400 million offer for Hawaiian Telcom
BY Rick Daysog
Advertiser Staff Writer
Local telecommunications company Sandwich Isles Communications Inc. said it wants to purchase Hawaiian Telcom Inc. for $400 million.
The offer would compete with a reorganization plan proposed earlier this month by the local phone company that had a $460 million price tag.
"The Sandwich Isles proposal represents a far superior restructuring alternative to the 'stand-alone' plan proposed," Sandwich Isles said in a filing in U.S. Bankruptcy Court on Friday.
Established in 1995, Sandwich Isles provides heavily subsidized phone lines to rural customers living on property developed by the Department of Hawaiian Home Lands. The federal government pays Sandwich Isles about $13,000 per customer for providing the service, which is 100 times higher than the average subsidy for rural telephone service on the Mainland.
"As a strategic acquirer with significant expertise in the Hawai'i telecommunications industry, the Sandwich Isles proposal would ensure a smooth transition of service to a proven local operator," the company said.
In its filing, Sandwich Isles said its offer includes $250 million in cash plus $150 million in debt issued by Hawaiian Telcom.
The company said it plans to keep Hawaiian Telcom's 1,400 workers at existing wages, with the exception of senior management.
A deal with Sandwich Isles would require the approval of the bankruptcy court, the state Public Utilities Commission and the Federal Communication Commission.
Hawaiian Telcom said it stands behind its own reorganization plan, which has the support of a key committee of its secured bank lenders, who have a big say on how the bankruptcy proceedings are handled.
"On June 3, Hawaiian Telcom filed its plan of reorganization, which will significantly reduce the company's debt by nearly $790 million, from $1.1 billion to $300 million, and position the company to emerge from bankruptcy a stronger and more financially secure company," Hawaiian Telcom said.
Hawaiian Telcom, founded in 1883, is the state's largest phone company with more than 500,000 business and residential customers state- wide.
The company filed for bankruptcy protection Dec. 1 due to its heavy debt load and the loss of thousands of customers to wireless and other competitors.
Besides the seller financing, Sandwich Isles said its purchase will rely on low-cost, federal government loans.
Since 1998, Sandwich Isles has obtained more than $400 million in loans from the U.S. Department of Agriculture.
The company is headed by Albert Hee, the brother of state Sen. Clayton Hee, D-23rd (Kane'ohe, Kahuku).
The company's participation in the government loan program and other subsidies has recently come under the scrutiny of an influential member of Congress.
In March, U.S. Rep. Henry Waxman, D-Calif., said Agriculture Department subsidies received by Sandwich Isles and other local carriers such as Sprint Nextel and Mobi PCS amounted to about $13,000 per phone line per year.
Waxman, chairman of the House Committee on Energy and Commerce, has advocated reforms to the government's high-cost rural phone subsidy program.
In its filing, Sandwich Isles said company officials met with Hawaiian Telcom's management earlier this year but were rebuffed.
Hawaiian Telcom currently is not required to consider Sandwich Isles' reorganization plan.
After filing for bankruptcy in December, the company had six months to come up with its own reorganization plan without having to consider alternative plans.
U.S. Bankruptcy Judge Lloyd King recently extended that period to June 30 and the company is seeking another extension to Sept. 30.
Sandwich Isles is opposing the latest extension request so it can present its reorganization plan earlier. A hearing is scheduled on July 1.