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Infratil, Brookfield to pay $2.06B cash and assume $1.34B of debt for Vodafone NZ

Tuesday 14th May 2019

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Infratil and Brookfield Asset Management's $3.4 billion purchase of Vodafone NZ will see them each pay $1.03 billion for a 49.9 percent stake.

The balance will come from taking on about $1.34 billion of Vodafone New Zealand's debt, and the 0.2 percent equity set aside for the telco's executive team, Infratil said. 

Infratil expects to pay its share through a fully underwritten equity raising of up to $400 million to be undertaken by UBS New Zealand, $400 million of debt from a committed acquisition debt facility, and the use of existing debt facility headroom.

"A significant proportion of any equity raising is expected to be directed towards existing shareholders," it said. "Infratil will continue to evaluate the optimal timing to undertake an equity raising. Timing and structure will be subject to market conditions."

According to Infratil, there is an eight-month period to obtain regulatory approval, but it expects it by August, with completion of the deal expected by Aug. 31, it said. 

The deal requires Overseas Investment Office approval, given Brookfield's involvement, Infratil said. The OIO application was submitted in March 2019 and the consortium has assessed the likelihood of receiving OIO approval as "high".  

The consortium is confident of meeting the relevant criteria and notes that Brookfield has previously been granted consent to acquire sensitive New Zealand assets, Infratil said. 

It also said there is  a "very strong basis for Commerce Commission clearance to be granted." 

However, Infratil owns 51 percent of Trustpower, which has a 5 percent fixed broadband market share by connection, while Vodafone New Zealand has a 26 percent fixed broadband market share and competitor Spark has 43 percent.

If Infratil cannot obtain Commerce Commission clearance, "the acquisition agreement would require Infratil to divest its interest in the Vodafone transaction, or failing that, divest its stake in Trustpower, by the eight-month deadline. The NZCC clearance condition could also be satisfied if Trustpower had sold its retail business in the required time," it said. 

According to Infratil, the purchase "significantly strengthens the cash generative core of the portfolio."  It increases exposure to long-term data and connectivity growth and complements the acquisition of Canberra Data Centres.

Infratil underscored its experience in establishing and supporting a standalone New Zealand entity formerly held within a multinational and creating significant value for shareholders, pointing to Z Energy. 

Brookfield's prior local investments include Powerco - New Zealand's second largest electricity and gas distribution company – sold in 2013, and C3, New Zealand's leading provider of forestry aligned logistics, Infratil said. The asset manager has over US$365 billion in assets under management. 

Infratil chief executive Marko Bogoievski, a former Telecom executive, said that Vodafone NZ has been "rigorously assessed over the past several months." 

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

According to Infratil, Vodafone New Zealand's forecast revenue for the 2020 financial year is $2 billion to $2.1 billion while underlying ebitda is expected to be in a range of $460 million to $490 million. It anticipates capital expenditure of $300 million to $350 million. 

The New Zealand business had revenue of $1.99 billion in the year to March 31, underlying ebitda of $463 million, capital expenditure of $253 million and an adjusted operating free cash flow of $210 million. 

Regarding its own guidance, Infratil said underlying earnings before interest, tax, depreciation, amortisation and fair value adjustments would be $635 million to $675 million in the March 2020 financial year, assuming the acquisition succeeds and including a seven-month contribution from Vodafone New Zealand, versus a prior forecast of $510 million to $540 million. It didn't change dividend guidance. 

It said post the equity raise, the acquisition is expected to lift per-share earnings by the 2022 financial year. 

Vodafone NZ chief executive Jason Paris, one of the executives who will own the residual shares, was positive about the deal.

"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."

Infratil also said a "highly experienced board of directors will guide Vodafone NZ through its next stage of growth. Marko Bogoievski will chair the board and governance rights will be shared with Brookfield." 

Infratil, which is managed by HRL Morrison & 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. The stock last traded at $4.60.


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