Investors urged to okay $150m Telecom split

Telecom released a scheme booklet to shareholders with details on the split and recommended they vote it through. Photo / Greg Bowker

Telecom's plan to break up its network and retail businesses will cost up to $150 million, the company has revealed.

Shareholders will meet on October 26 to vote on whether the country's largest phone and internet provider will split itself in two so its network arm, Chorus, can take part in the Government's ultra-fast broadband scheme.

If shareholders approve, the company will demerge on November 30.

Telecom released a scheme booklet to shareholders yesterday with details on the split and recommended they vote it through.

An independent report by Grant Samuel, included with the booklet, claimed Telecom would need to invest an extra $500 million to remain competitive if shareholders reject the proposal and Chorus is cut out of the internet project.

If the split gets the green light, shareholders will receive one Chorus share for every five Telecom stocks they own. However, the company said they can offer no guidance on what Chorus shares will be valued at, post-split. Telecom shares closed yesterday up 5c at $2.51.5.

The country's second largest company proposed the break-up as part of its bid for the ultra-fast fibre contracts, which it won the bulk of in May.

If the separation plans are approved, Chorus will become a publicly listed company and receive $929 million of taxpayer funding to roll out fibre cables throughout 24 towns and cities around New Zealand. The new Chorus business will own 130,000km of copper lines, 27,000km of fibre lines and over 500 telephone exchanges.

Under the plan, Telecom will hold on to its mobile network and become a stand-alone retail business, selling phone, internet and IT services.

If the split goes ahead, one of the company's former top executives, Mark Verbiest, will replace Wayne Boyd as Telecom chairman.

Verbiest worked for Telecom between 2000 and 2008 under Theresa Gattung and is the chairman of Transpower and a director of AMP NZ and Freightways. Verbiest would "reconsider his portfolios" to ensure he can devote enough time to the new position, Telecom said yesterday.

Boyd will step down from the Telecom board after the demerger, as will Sue Sheldon, who is taking up a position as chair of Chorus.

Ron Spithill will also give up his seat, while Charles Sitch, Justine Smyth, Maury Leyland and Paul Berriman have been put forward as new directors. Existing board members Murray Horn and Kevin Roberts are standing for re-election.

Telecom chief executive Paul Reynolds will lead the retail business through the split, but has said he will leave the company by July next year.

Chorus boss Mark Ratcliffe will stay on as chief executive if the demerger is approved.

Telecom said yesterday the costs associated with the split could be as high as $150 million, made up of transaction expenses of $85 million to $120 million and operational expenses of up to $30 million.

This is in addition to a $257 million write-down this year of Telecom's assets which will no longer hold value if the split goes ahead.

The $150 million figure is well below earlier estimates, which put the demerger costs at $200 to $400 million.

Forsyth Barr's Guy Hallwright attributed the lower cost to deals which will let Telecom and Chorus share some assets after they split.

"They are lower than what people have been thinking because the UFB agreements have a lot of provisions for the sharing of assets so things don't have to be duplicated so much.

"Over time as systems wear out they will be replaced by [either Telecom or Chorus] but they share them for a number of years."