How much did Vocus pay for Stuff Fibre? An indicator

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When the sale of Stuff Fibre was announced on May 14, the deal seemed like a footnote; some housecleaning as Nine streamlined its NZ publishing operation, which was on the block.

But the sale of media firm Stuff to its chief executive Sinead Boucher makes it more interesting - as it appears the Stuff Fibre proceeds will form the new owner's main source of initial funding.

"As a result of the successful completion of the Stuff Fibre sale on 20 May 2020, Nine will receive 25 per cent of those proceeds before completion of the Stuff sale, plus up to a further 75 per cent over the subsequent 36 months, depending on the Stuff business' ability to raise funding," Nine said in a statement to the ASX.

Stuff Fibre and its 20,000 customers was sold to ASX-listed Vocus (whose stable includes Orcon and Slingshot) for an undisclosed sum.

At the same time Nine sold Stuff's 57 per cent stake in power retailer Energy Club back to the company's founder, former Genesis Energy executive David Goadby, also for an undisclosed sum.

EnergyClub had about 11,500 customers at March 31, according to Electricity Authority data.

The Stuff Fibre sale doesn't move the needle in terms of anyone's share in a low-margin market that's all about scale. It means Vocus now has 225,000 NZ fixed broadband customers, remaining well ahead of fourth and fifth players Trustpower and 2degrees (both a little over 100,000) and still a distant third behind Vodafone (just over 400,000) and market leader Spark (just under 700,000).

Still, given its role in the Stuff management buyout, how much could it have gone for?

A comparable deal is when Snap Internet was sold to 2degrees in 2015 for $28 million, or $1400 per customer (a later regulatory filing revealed it was slightly higher than the $26m reported at the time, based on industry rumours).

Snap and Stuff Fibre were almost identical in size, with 20,000 customers each.

But while Stuff Fibre was marketed heavily toward residential customers, Snap had a 50/50 split between enterprise and mass-market customers, according to a person familiar with the terms of the deal - and 90 per cent of its profit came from enterprise customers, who included big companies, universities and DHBs.

More, Snap had a series of IRUs, or long-term lease agreements on domestic and international broadband networks that were valuable to the (then) mobile-only 2degrees. Stuff Fibre, by contrast, had none of its own network assets. It was a virtual ISP that resold a broadband service provisioned behind-the-scenes first by Vocus, then Devoli.

That model meant Stuff Fibre was cheap and easy to get up and running, and maintain - but it would have also limited its per-customer value to Vocus. So the $28m for Snap's 20,000 customers would probably represent an absolute upper-limit for the Stuff Fibre deal; it likely went for a lot less.

Nine's ASX filing also says the company anticipates a A$40m to $45m specific item cost in its FY2020 result, expected in August. It was not immediately clear if that related to a debt write-off. Stuff has around $43.1m in current debt.

The $1 sale of Stuff - or the $45m write-off, depending on your point-of-view - is set to close on May 31.