TeamTalk says it's in discussions with other parties and has advised shareholders to wait after Spark New Zealand confirmed its $22.7 million takeover offer for the network minnow, a deal which would give the country's biggest telecommunications group ownership of fibre in Wellington and a wireless rural internet service provider.
Auckland-based Spark indicated it wants to integrate TeamTalk's services into the larger group, cutting costs by stripping out any duplication and reviewing the business to see what parts of the Wellington network can be grown and whether any units should be divested.
The 80 cents per share offer is a 78 per cent premium on where TeamTalk shares traded before Spark announced its intentions in February, and an 82 per cent premium on a three-month volume weighted average price basis, though the shares have risen since then and were up a further 1.3 per cent today to 78 cents.
Spark said the rapidly changing New Zealand telecommunications market had created headwinds for TeamTalk resulting in a series of earnings downgrades as margins have come under increasing pressure, and its offer gives shareholders greater certainty than what the board is advocating.
"TeamTalk has indicated that it will consider a resumption of dividends in 2018, however its ability to do so appears to us to be limited given its 1H17 financial result, current debt levels, large reduction in debt targeted by June 2018, and future capital expenditure requirements per TeamTalk's own guidance," Spark said. "We do not believe TeamTalk can deliver a better outcome for its shareholders than Spark's offer."
TeamTalk's directors repeated their opposition to the takeover this morning, advising shareholders to do nothing until they get TeamTalk's target company statement and recommendation, which will be released by March 23.
"Spark are too busy looking backwards at the last few years and not the full history of TeamTalk where it has been successful and paid out good dividends to its shareholders," chief executive Andrew Miller said. "A company should be valued on its expected future earnings and cash flows. I have successfully led turnarounds before and I know that TeamTalk is off the bottom and going back up. A share price of 80 cents is a fabulous deal for Spark and a poor one for TeamTalk's shareholders."
The company said it is "in discussion with a number of parties with respect to transactions and will make the required announcements when appropriate. We believe that these transactions have the potential to provide a better outcome for our shareholders."
Spark has dropped its condition for Overseas Investment Office approval for the deal, after determining it could remove the condition following further investigation.
The country's biggest telecommunications firm will need Commerce Commission approval to proceed, and may waive a condition to cross the 90 per cent threshold needed to mop up hold-out shareholders if it secures control of TeamTalk, in which case it would stack the board with its representatives. Spark has previously signalled a desire to reduce its reliance on network operator Chorus's regulated copper lines and last year talked up the opportunities wireless broadband offers to grow the budget end of the market.