Vodafone NZ sold for $3.4 billion to Infratil and Canadian investment firm

Tuesday, 14 May 2019

Vodafone has sold Vodafone New Zealand to Kiwi company Infratil and Canadian firm Brookfield Asset Management for $3.4 billion in a deal that Vodafone NZ boss Jason Paris said would give customers 'the best of both worlds'.

Infratil chief executive Marko Bogoievski said the partnership between the company and Brookfield was essentially a '50:50' one.

Paris said the business would be allowed to continue to use the Vodafone brand for as long as it wanted, for an undisclosed fee, under a partnership agreement.

That agreement would also provide 'preferential access' to Vodafone's networks overseas, meaning customers would be able to roam on those networks when travelling overseas.

Paris said Vodafone NZ had got the backing of 'two new world class and long-term investors' and could continue to tap into Vodafone's global expertise.

* Infratil confirms it wants to buy Vodafone

* Director of company that may acquire Vodafone NZ resigns from Spark's board**

'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. So it really is the best of global and local.'

Infratil said in a statement to the NZX that the deal would be transformational for the company, with chairman Mark Tume likening it to its buy-out of Shell's petrol station business, now Z Energy, in 2010.

'Telecommunications is critical infrastructure for New Zealand and Vodafone NZ is an integral part of everyday Kiwi life,' he said.

'The quality and availability of its networks have a direct bearing on New Zealand's competitiveness and future growth prospects. Our 2010 acquisition of Shell's New Zealand downstream assets is an example of our ability to enhance a significant New Zealand infrastructure business.'

He expected the deal, which is subject to approval by the Overseas Investment Office and the Commerce Commission, would be completed by the end of August.

Infratil shares were trading down 5.4 per cent at $4.35 in late morning trading after the announcement, while Spark's shares were down 1.2 per cent.

Vodafone Group chief executive Nick Read indicated the sale would reduce its own debt.

'We have always been proud of our Vodafone New Zealand business, which has a great team, and we look forward to a continued close relationship through our partner market agreement, he said in a statement.

The deal was subject to 'customary regulatory approvals', he said.

Infratil chief executive Marko Bogoievski, who was chief financial officer of Telecom between 2000 and 2008, said it had 'rigorously assessed' Vodafone over several months.

'We have done an extensive amount of work to ensure we understand the opportunities available to the business, in particular, the ability to use next generation 5G technology to significantly enhance network capability and future services to Vodafone NZ customers,' he said.

'We expect that this acquisition will create strong, long-term value for Infratil shareholders.'

Infratil and Brookfield would each pay just over $1b in cash to Vodafone with the balance of the $3.4b purchase price funded with Vodafone NZ debt and 'a portion of equity reserved for the Vodafone NZ executive team'.

Infratil would raise $400m mainly from existing shareholders to pay for the purchase.

The New Zealand telecommunications market was worth just over $5.4b last year, according to the Commerce Commission.

Vodafone was the largest mobile provider, by subscriber numbers, with a 41 per cent share of the market, versus Spark's 37 per cent with its Skinny brand included.

It was second to Spark in fixed-line broadband, with a 26 per cent share of that market versus Spark's 43 per cent.

Vodafone NZ is 'number one' in mobile, and second to Spark in the broadband market, by subscribers, according to the Commerce Commission.

Infratil has a stake in Trustpower which the commission estimated was the fifth-equal largest player in the broadband market with a 5 per cent market share.

However, about 80 companies sell broadband, with few barriers to entry in the market, making it less likely that would raise competition concerns for the Commerce Commission.

There were rumours that Vodafone mooted selling its New Zealand business as far back as in 2006 shortly after Vodafone repatriated a whopping $500 million dividend from the then super-profitable company.

A sale, then, would have come prior to the arrival of competition from 2degrees and regulation that slashed mobile termination fees – which consumer groups claimed had been artificially inflating the cost of calls to and from mobiles.

But no deal transpired and Vodafone instead doubled-down on New Zealand in 2012 with the purchase of fixed-line and broadband provider TelstraClear from Australia's Telstra for $840 million.

In 2016, Vodafone proposed a partial reverse takeover of Sky TV in a deal that would have resulted in it owning a 51 per cent stake in a combined Vodafone NZ/Sky business, the remainder of which would have been listed on the NZX.

That deal would also have seen Vodafone paid out $1.25b in cash from the merged firm which would also have had to pay Vodafone $314m over 10 years for the right to use the Vodafone brand.

The proposal also valued Vodafone NZ on paper at $3.4b but was shot down by the Commerce Commission the following year.

Vodafone subsequently tested the waters for floating a stake in Vodafone NZ on the NZX regardless, only to shelve that plan early last year when it emerged investors might not be willing to pay its asking price.

The plan was revived last year under new chief executive Jason Paris who was tasked with cutting costs and getting Vodafone NZ's accounts into better shape for a possible second-crack at listing next year.

Indian outsourcing company Tech Mahindra said in backgrounder to Vodafone call centre staff that it had entered into a five-year deal to provide support to Vodafone NZ customers from India and a 'centre of expertise' it is establishing in Christchurch.

The Unite union has criticised the contracts offered to some Vodafone call centre staff who have been invited to transfer to Tech Mahindra, describing them as 'inferior and exploitative'.

Brookfield partner Stewart Upson described the Vodafone purchase as a 'unique opportunity for Brookfield to invest in a large-scale, high-quality data infrastructure business with one of New Zealand's most experienced infrastructure managers'.

Alison Gerry, who had sat on the boards of both Spark and Infratil, resigned from Spark's board on Monday because of the 'potential conflict of interest'.

Infratil said in its NZX statement that Gerry had not participated in Infratil discussions relating to the Vodafone NZ purchase and had not been provided with access to any information on the acquisition.

'Conflicts management protocols were agreed with Gerry following her appointment as a director of Spark to ensure she would not be provided with confidential information concerning developments in the telecommunications sector,' Infratil said.

WHO IS INFRATIL?

Infratil is an investment company listed on the NZX where it has a market value of about $2.5b.

The company is headed by former Telecom chief financial officer Marko Bogoievski.

It mainly invests in energy, transport and 'social infrastructure' businesses. Among its investments are stakes in Trustpower, Wellington Airport and NZ Bus.

WHO IS BROOKFIELD?

Brookfield Asset Management is an asset management company based in Toronto that owns assets worth US$365b (NZ553b), with over US$30 billion of capital invested. Its investment focus is on real estate, renewable power, infrastructure and other 'private equity' assets.

The company's shares are listed in the New York and Toronto stock exchanges.