Vodafone has sold its New Zealand arm for the cash equivalent of $3.4 billion to a 50:50 consortium comprising Infratil and Canadian investment firm Brookfield Asset Management.
The deal is subject to regulatory approval. Infratil anticipates a decision before the end of Vodafone's current financial year, but says the exact timeline will depend on the Commerce Commission and Overseas Investment Office.
Brookfield has over US$365b in assets under management. Its many interests include a majority stake in Oaktree Capital, the private equity owner of MediaWorks.
Under the deal, Infratil and Brookfield will be allowed to use the Vodafone brand, and will get access to "preferential roaming" rates and Vodafone technology - at "fair" commercial rates.
Vodafone NZ chief executive Jason Paris will stay on.
According to Vodafone Group, the deal was struck at an implied multiple of 7.3 times adjusted March-year earnings before interest, tax, depreciation and amortisation and 16.2 times adjusted operating free cash flow.
It said the New Zealand business had revenue of $1.99b in the year to March 31, adjusted ebitda of $463 million, capital expenditure of $253m and an adjusted operating free cash flow of $210m.
The $3.4b purchase price is to be funded via a $1b equity contribution from each of Infratil and Brookfield, with the balance funded from Vodafone NZ level debt and a portion of equity reserved for the Vodafone NZ executive team, Infratil said in a statement to the NZX - implying Vodafone NZ will be saddled with $1.4b in debt.
Infratil also confirmed analyst speculation that it would tap investors for more funds to help meet its side of the deal. It will seek to raise up to $400m by issuing new shares, with the balance of its contribution met through its existing debt facilities.
Investors were nervous about the deal as the market opened. Infratil shares were down 5.65 per cent to $4.34 in late morning trading. The stock is still up 45.79 per cent over the past year.
Bogoievski, who will chair Vodafone NZ if the deal goes through, told the Herald the dip was the expected reaction to Infratil's plan for a $400m equity raise.
It was reported earlier this week that there were a number of potential suitors interested in the business, with speculation that Infratil was facing competition from private equity giants Blackstone, Kohlberg Kravis Roberts (KKR) and TPG Capital (not to be confused with Australian company TPG Telecom, which is attempting to merge with Vodafone Australia).
But yesterday afternoon there was also sign that an Infratil/Brookfield deal was close as Spark director Alison Gerry - who also sits on Infratil's board - abruptly quit Spark, citing a perceived conflict of interest.
Should get green light
The latest deal comes after the Australian Competition and Consumer Commission recently blocked a A$15b merger of TPG Telecom and Vodafone's Australian business, arguing it would reduce competition.
And the Commerce Commission blocked Vodafone's earlier bid to merge its NZ business with Sky TV.
But this morning, competition lawyer Michael Wigley said he doubted the Infratil/Brookfield-Vodafone NZ deal would encounter any regulatory issues, although he did raise a possible snag involving Intratil's majority snag in power and broadband provider Trustpower.
New owners can use Vodafone brand, technology
Paris said, "It's the absolute best of both worlds for customers. We've got the backing of two new world class and long-term investors plus we can continue to tap into Vodafone's global expertise, including all the services our customers value such as global roaming, global procurement and the world's largest internet of things platform.
"The key things will stay the same – our strategy, our people, our management team, our brand, and our ability to tap into Vodafone's global products and services."
Infratil, which is managed by Morrison and Co, was put on a trading halt by the New Zealand stock exchange on Friday when it announced it was in talks with another party to buy Vodafone's New Zealand business.
In November, Paris said the plan was to float the company and the target for the initial public offering was 2020. That followed the blocked bid to sell the business for $3.44b to Sky TV.
Not Infratil's first foray into tech
Buying into Vodafone would not be Infratil's first tech investment.
In 2016 it bought a half share in Canberra Data Centres (CDC) for A$392m and a year later invested a further A$50m to help fund its growth.
Last month Infratil said the value of its 48 per cent stake in CDC had risen from $487.8m to $841-$942m.
Infratil also has a minority stake in Trustpower, which has gained a 5 per cent share of the broadband market over the past few years.
It will also be a case of back to the future - or at least back to the telco industry - for Infratil chief executive Marko Bogoievski, who served as CFO and one of Theresa Gattung's top lieutenants at Telecom during the 2000s.
Who is Brookfield?
Brookfield is a Canada-based asset management company with over US$365 billion in assets under its management.
Founded in 1899 as São Paulo Tramway, Light and Power Company, the outfit has grown steadily with a focus on real estate, renewable power, infrastructure and private equity.
Brookfield's assets account for over 80,000 employees across the world.
Included among its many investments is Oaktree Capital Management, in which Brookfield acquired a 62 per cent stake in March 2019. The merger between the two firms created an entity that rivals the Blackstone Group as the world's largest alternative money manager.
Oaktree is the private equity owner of MediaWorks in New Zealand.
Vodafone NZ by the numbers
For 2017 (its most recently reported audited financial year results), Vodafone NZ made a profit of $57.5m, turning around a loss of $18.3m. Revenue increased 2.8 per cent to $2.05b.
In the mobile market, Vodafone has around 2.4m mobile customers, putting it neck-and-neck with Spark and well-ahead of third-placed 2degrees.
In fixed-line broadband, Vodafone NZ has around 430,000 customers, putting it second behind Spark (around 670,000) and well ahead of third-placed Vocus (around 200,000).