2degrees' majority shareholder to list in Toronto

So much for the rumours of an ASX listing or a takeover by Vocus.

2degrees’ majority shareholder, Seattle-based Trilogy International Partners, has announced its intention to merge with the Alignvest Acquisition Corporation – and if the deal gains regulatory approval, the combined company will be listed on the Toronto Stock Exchange (or at least inhabit a shell company that is already listed but dormant).

Alignvest, whose backers include former top executives at Rogers (the dominant telco in Canada), was listed on the Toronto bourse in June 2015, raising $US202 million.

In a statement, Alignvest says to fund the deal it has secured an additional $US61 million, with the transaction conditional on a minimum cash requirement of $US135 million, of which transaction fees of $US$6.1 million have already been committed, with completion due in the first quarter of 2017.

A person close to the deal describes Alignvest as a “special purpose acquisition vehicle” or in more casual terms “a fund looking for an investment.”

The privately-held Trilogy, which has a 63% stake in 2degrees, will own “more than 20%” of the combined company, which will be known as Trilogy International Partners. The existing Trilogy management, including chairman John Stanton (on Forbes' billionaires list after a career of telco deals) will continue to run the combined entity. 

In a combined statement, Alignvest and 2degrees say their combined company will have “an aggregate enterprise value of $US875 million and an equity value of up to $US610 million.

Alignvest has no assets beyond the $US202 million raised by its listing. Apart from 2degrees, the combined company’s other major asset will be Bolivian telco NuevaTel, in which Trilogy has a 72% stake.

A prospectus has yet to be filed with the Ontario Securities Commission. The valuation is based on Trilogy’s expected 2017 adjusted ebitda of $US120 million (reflecting its ownership interest in NuevaTel and 2degrees), which the company says will be an increase of 18% from expected 2016 (see 2degrees' latest financials below).

Other 2degrees shareholders invited in
Other 2degrees shareholders, which include iwi shareholder Hautaki (7%), have been invited to swap their stake 2degrees for one in the new Toronto-listed vehicle.

2degrees director of corporate affairs and wholesale Mat Bolland says Alignvest executives visited New Zealand for meetings as they were weighing investment options and liked what they saw.

Mr Bolland says the group behind Alignvest will bring expertise and capital.

Some of the proceeds from the listing will go to retire Trilogy debt.

In 2010 Trilogy refinanced a $US250 million bond with a $US370 million issue maturing this year. In April, Trilogy arranged to refinance a bond offer maturing this year. Ratings agency Moody’s has published notes indicating the new bond offer involves $US450 million of senior secured notes due in 2019.

Read the full Trilogy-Alignvest statement here.

Alignvest investors and proposed Trilogy board members
Nadir Mohamed (former CEO of Rogers Communications, Chairman of Alignvest), Anthony Lacavera (Chairman of Globalive Capital; Founder, former Chairman and CEO of Wind Mobile), and Joe Natale (current proposed President and CEO of Rogers Communications, former President and CEO of Telus) 

2degrees' financials for the 12 months to December 2015

• Net loss of $33.1 million (6% improvement on 2014's: $35.2 million*) as revenue rose but so did finance costs
• Ebitda up 43.9% to $78.5 million (2014: $54.1 million)
• Revenue up 43.1% to $569.1 million (2014: $399.6 million), driven in part by the uptake of pay monthly plans and an associated move to front-load handset revenue, plus $30.6 million (or around $40 million on an annualised basis) from Snap, acquired in March last year to give 2degrees a foothold in the fixed-line broadband market. The period also included the first two months of a wholesale deal for The Warehouse's Warehouse Mobile service. 
• Debt of $203 million (2014: $153 million)** 
• Net cashflow from operations positive at $36.3 million (2014: $40.2 million)
• Net negative cash flow from investing activities rose to $95.2 million from $55.1 million, in part due to the purchase of Snap***

* With hedging gains factored in, the 2015 loss was $32.6 million (static with 2014's: $32.6 million on the same basis)

** 2degrees' briefing was held at the Queen Street office of BNZ ("because it's nicer than ours," as one 2degrees manager quipped). BNZ heads a syndicate of banks that provided 2degrees with a $200 million line of credit in 2013. The company's 2015 accounts list its committed bank facility at $196.2 million, up from 2014's $167.5 million. Total interest-bearing liabilities are listed as $203 million from 2014's $153 million. The 2015 accounts also note that on March 7, 2016, after the reporting period closed, majority shareholder Trilogy extended the due date of a loan payable to it to March 31, 2017.The 2015 accounts list an $18.3 million related-party loan, new to the books. NBR understands the related party is Trilogy.

*** It was widely rumoured that Snap (soley owned by Mark Petrie) was bought for $27 million. A footnote with 2degrees' 2015 filing confirms that was close. The amount was $28.1 million in cash and shares. The cash component was $9.9 million.