Vodafone Group has sold Vodafone New Zealand to Infratil and Brookfield Asset Management. For now the deal is conditional. Approval is needed from both the Overseas Investment Office and the Commerce Commission before the transaction can complete.
Should the deal complete, the New Zealand operation will enter a multi-year partner market agreement with the UK-based Vodafone Group.
The deal means the local business can keep the Vodafone name and branding. It also gives the local company a preferential roaming arrangement overseas and access to Vodafone functions including central procurement and various services.
Vodafone New Zealand Chief Executive, Jason Paris says Vodafone has 40 partner agreements worldwide, New Zealand will be the biggest.
The deal is worth $3.4 billion. Infratil and Brookfield will each make a $1 billion equity contribution. The rest will be funded from Vodafone NZ level debt and equity reserved for Vodafone NZ’s senior executives.
The parties have eight months to get Overseas Investment Office and Commerce Commission permissions. Infratil says there’s a strong case for the Commerce Commission to give permission because of the competitive nature of the fixed broadband market.
A complication is Infratil’s Trustpower stake. The electricity retailer has around a five percent share of the broadband market, while Vodafone is the second largest service provider with a 26 percent market share.
If the Commerce Commission doesn’t clear the deal, Infratil either has to pull away from Vodafone or divest its stake in Trustpower before the eight-month deadline.
Vodafone is New Zealand’s second largest telco behind Spark. In the last year it had revenue of $2 billion and an EBITDA of $463 million. That puts the price at a little over 7 times earnings. While that is at the high end of the range for a telecommunications business, there were other bidders circling the business.
Until now Vodafone had been preparing for an IPO on the NZX. As part of its preparations it has been on a cost-cutting programme. It has also been held on a financial tight leash by the parent company, that has made it hard for it to compete with Spark as companies prepare for 5G mobile.
The parent company also restrained Vodafone NZ from pushing fixed wireless or from offering unlimited phone plans. Both are now expected to change.