April 4 (Bloomberg) -- Telecom Corp., whose NZ$11 billion ($6.78 billion) market value makes it New Zealand's largest company, may be taken over in a leveraged buyout because a drop in the share price makes it attractive, according to analysts at Credit Suisse Group.

``We view Telecom's recent share price weakness as creating an opportunity for a leveraged buyout consortium to bid for the company,'' Justin Cameron and Mark Storey, analysts at Credit Suisse in Sydney, said in a report published today. In leveraged buyouts, firms put up a little of their own money and borrow the rest, piling debt onto the company being acquired.

Buyout firms are lured to returns from telecommunications companies as global interest rates fall, Credit Suisse said. Softbank Corp. this month raised funds for the buyout of Vodafone Group Plc's Japanese mobile-phone unit, and Australia's Babcock & Brown Capital Ltd. is leading a group seeking to buy Eircom Group Plc, Ireland's biggest telephone company.

Telecom doesn't comment on analyst reports, spokesman Phil Love said in an interview.

Shares in Wellington-based Telecom, which accounts for 22 percent of New Zealand's NZX 50 Index, had dropped 7.5 percent so far this year, before today, and the company has reduced debt, making it a more attractive target, the analysts said.

A buyout firm could bid as much as NZ$6.75 a share for Telecom and still generate an internal rate of return of 25 percent, exceeding the typical leveraged buyout return of 20 percent, according to Credit Suisse.

Price Target

The brokerage upgraded its 12-month price target on the stock to NZ$6.30 from NZ$5.79, reflecting the potential price of an initial bid. Shares in Telecom rose 6 cents, or 1.1 percent, to NZ$5.62 at the 5 p.m. market close in Wellington.

A buyer could sell Telecom's Australian AAPT business, which is already under review for a potential sale or merger, and could also sell its Southern Cross Cable stake, Credit Suisse said.

A potential bidder could negotiate with New Zealand's government to overcome ownership restrictions on Telecom in return for more regulations on high-speed Internet, Credit Suisse said.

Under Telecom's constitution, no one shareholder can hold more than 10 percent of Telecom's stock and there is a 49.9 percent stock restriction for an overseas shareholder. Prices of some products are also regulated. Still, Credit Suisse said a buyer could probably overcome these hurdles through negotiation with the government.

Credit Suisse didn't name potential buyers for Telecom.

To contact the reporter on this story: Tina Morrison in Wellington tmorrison3@bloomberg.net

Last Updated: April 4, 2006 01:24 EDT