Infratil taking full control of One NZ in $1.8 billion deal

Infratil will pay $1.8 billion to raise its stake in One NZ (formerly Vodafone NZ) from 49.95 per cent to 99.90 per cent, as it buys out its Canadian partner Brookfield Asset Management.

The NZX-listed firm will fund the deal through the issue of $850 million worth of new shares, cash, and debt facilities of $950m. Retail investors will be able to participate via a $100m offer.

Infratil raised its full-year FY2024 proportionate ebitdaf (earnings before interest, tax, depreciation, amortisation and fair value movements) guidance range from $570m-$610m to $800m-$840m on the back of the deal, which it said reflected One NZ’s greater contribution. There was no change to dividend guidance.

At its full-year result, Infratil listed an independent valuation of $1.2b for its 49.95 per cent stake in One NZ. Infratil buying Brookfield’s half-share for $1.8b implies an equity value of $3.6b. Using the broader enterprise value metric, Infratil said the deal values One NZ at $5.9b.

Vodafone PLC sold its New Zealand operation to Infratil and Brookfield in a 2019 deal - almost four years ago to the day - that valued the business at $3.4 billion.

Each took a 49.95 per cent stake, with chief executive Jason Paris and other senior managers holding the balance.

The deal will make One NZ easily the largest asset in Infratil’s portfolio, pushing it ahead of its half-share in CDC, which was recently re-valued upwards by a third to $3.1b.

In a conference call, Infratil CEO Jason Boyes said the deal improved his firm’s flexibility to invest in the short term for long-term growth.

He said the deal “gives us 100 per cent control over One NZ’s stable and growing cashflows to support our other platforms”.

The deal announced this morning comes on the heels of Infratil delivering a strong full-year result, underpinned by strong performances by data centre operator CDC and One NZ.

One NZ - which booked $28m in rebranding costs during the period ahead of its change from Vodafone NZ on April 1 - saw its ebitdaf rise 9.7 per cent to $527.8m, ahead of Forsyth Barr’s estimate of $520m in a year that saw high-margin roaming revenue return to 80 per cent of pre-Covid levels and the partial sale of One NZ’s celltower network.

Infratil saw even higher profits ahead. One NZ operating earnings for FY2024 were forecast at $580m to $620m - handily ahead of Jarden’s estimate ($540m) and Forsyth Barr’s punt ($550m).

Net debt at the end of FY2023 was $1.38b from the year-ago $1.34b.

Revenue was $1.98b, nearly flat on FY2022′s $1.97b.

One NZ kicked off its new financial year on April 1 with its rebrand from Vodafone NZ, and its announcement it would partner with Elon Musk’s Starlink for 100 per cent mobile coverage - initially with text messaging - from late next year. 2degrees and Spark have since revealed deals with putative Starlink rival Lynk.

On the conference call, Boyes said One NZ was “well positioned to achieve a 30 per cent ebitda margin target” over the next few years.

Paris said One NZ had seen growth in its post-paid mobile numbers for eight consecutive quarters. The CEO said there would be “no change in strategy” as a result of the deal.

Why did Brookfield sell out if the future returns are so good? Boyes told the conference call that the Canadian firm invested from funds with limited lifetimes.

A retail offer booklet is due on June 13. The closing date for share applications is June 27.

Infratil says it expects the deal, which is unconditional, to close late next week after the $750m institutional share placement - which will be at underwritten at $9.20, an 8.9 per cent discount on Tuesday’s close. The $100m retail offer is not underwritten.

Shares, which were placed on a trading halt immediately after this morning’s announcement, closed Tuesday at $10.01. The stock is up 27.2 per cent over the past 12 months.

Forbarr has an “outperform” rating on Infratil, with a 12-month target of $11.30.