Vocus won't sell its New Zealand assets

Vocus has released the result of its bidding process — and no one will be buying its New Zealand assets, which include Orcon and Slingshot.

Shares [ASX:VOC] fell 2.9% as the market opened.

Trustpower, seeking to expand its broadband business and cash-rich after the sale of its Australian hydro assets was said to be the lead bidder.

But on March 28, Vocus's new chairman Bob Mansfield warned that the New Zealand business would not be sold if it could not attract the right price. Final bids were due this week.

And with its major shareholders split between the risk-averse TECT and the more adventurous Infratil, Trustpower was, apparently, not in a position to raise its bid (the energy company declined comment throughout).

And in an ASX filing today, Vocus says while its New Zealand business got a number of bids, "in the board's view, none of these offers appropriately reflected the fundamental and strategic value of Vocus NZ nor provided sufficient certainty of funding and execution."

Vocus never put a price tag on its New Zealand assets, which had a carrying value of $A332 million but was said to be looking for upwards of $A500m. 

Proceeds would have been used, in part, to pay down around $A1.1 billion in debt.

Instead, Vocus says it has reached an agreement with lenders to amend covenants under its existing debt facilities by extending the 'surge limit' relating to its net debt/ebitda leverage ratio cap of 3.5x.

The other contenders
NBR understands a bid by 2degrees in concert with a private equity player fell apart after the PE player wanted to take a stake in 2degrees first but the pair could not agree on a valuation.

Spark and Vodafone were both also keen but both faced the likelihood of an uncertain, extended fight with the Commerce Commission at a time when the Vocus board wanted a relatively quick sale.

Back to business on the home front
Vocus NZ chief executive Mark Callander says this process "has reinforced how strong the New Zealand business is, along with the significant growth prospects it has across all market segments."

He and his team will now get on with expansion plans.

"Over the next few weeks, most of the Auckland team of 500 staff are moving into a new HQ on Sale Street, so it’s an exciting time for the teams and we now have clarity on the future," he says.

"For the first time, we will have the majority of the Auckland-based team under the one roof, which will drive some great business outcomes. It will also improve collaboration and engagement with our offices in Takapuna, Wellington and Christchurch."

Retail broadband landline market share. (Source: Commerce Commission Telecommunications Market Monitoring Report, December 2017.)

Vocus, which was recently added to the Crown's telecommunications-as-a-service all-of-government supplier panel, is shooting for a 25% residential market share, Mr Callander says.

What was on offer
Vocus' New Zealand assets include ISPs Orcon, Slingshot, Flip and CallPlus, 2Talk, bought by M2 for $NZ250m (or roughly 1x revenue) in 2015 from NBR Rich Listers Malcolm Dick and Annette Presley. M2 was taken over by Vocus shortly after the deal.

The assets also include the old FX Networks fibre network, bought by Vocus for $NZ116m in 2014.

The New Zealand stable also includes an Auckland data centre inherited (then extensively upgraded) when Vocus bought Maxnet for $10m in 2012.

And its recent half-year report revealed Vocus paid $9.8m for Auckland-based power Switch in late 2016.

Vocus NZ half-year financials
Ebitda for Vocus’ New Zealand division rose 2.1% to $29m for the six months to December 31 (the New Zealand unit reported $31.7m ebitda for the year-ago period but $3.3m has now been reclassified as expenses and deferred subscriber acquisition costs).

New Zealand revenue rose 4.1% to $182.6m for the half-year. Enterprise and wholesale sales increased 10% to $90.8m while consumer market fell 1.1% to $91.8m.

Please respect our copyright and do not copy this article without permission, even if you have a subscription.