TeamTalk shareholders to vote on Farmside sale next month

Tuesday 28th March 2017

TeamTalk shareholders will vote on a plan to sell a controlling stake in its Farmside internet services provider to Vodafone New Zealand next month, in a deal which is expected to substantially reduce the telecommunication minnow's debt levels.

The company will hold a special meeting on April 12 in Wellington where shareholders will be asked to approve the transaction which will see Vodafone buy of 70 percent of Farmside for $10 million and hold an option to purchase the remaining shares at any time in the next three years for a further $3 million.

Vodafone will also have an option to mop up the remaining Farmside stake if a rival firm builds a 20 percent-plus interest in TeamTalk, acquires control of the firm, or installs a director to the board.

The transaction will cut TeamTalk's operational costs by about $3.2 million, while almost all of the sale proceeds will repay its $33.9 million of bank debt which it characterises as the firm's "biggest challenge".

"If the proposed sale is approved, almost all of the $10 million cash payment will be applied towards repayment of that debt which will come close to achieving the targeted reduction before the middle of this year," TeamTalk said in its notice of meeting. "This will bring forward substantially lower financing costs even more quickly than anticipated."

The deal could scuttle a $22.7 million hostile takeover bid mounted by Spark, the country's biggest telecommunications company. Spark has called TeamTalk's independent valuation range of $1.52-to-$2.11 an "absurd premium", however TeamTalk's board has rejected the offer as being too low and "opportunistic" as it doesn't account for the new management team's strategy to turn the business around.

TeamTalk told shareholders breached a series of conditions in the Spark offer, which now have to be waived for the larger telecommunications firm to continue its pursuit. It also said the Takeovers Code prevents TeamTalk from taking any action to frustrate the bid unless approved by shareholders.

The Wellington-based company's board unanimously backs the Vodafone deal, which the firm says will immediately cut financing costs and debt levels, providing greater room to invest in upgrading TeamTalk's mobile radio network and Wellington fibre network. It would also boost the likelihood of dividends being resumed next year.

The shares rose 3.2 percent to 96 cents, still below the independent valuation range but north of Spark's 80 cents per share offer.

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