Australia's M2 buys NZ ISP CallPlus

Australian-listed telecommunications provider M2 will buy New Zealand's third-largest internet service provider.

Australian Securities Exchange (ASX)-listed M2 Group has inked binding agreements to acquire New Zealand's CallPlus Group and related company 2Talk Limited for NZ$250 million.

CallPlus is the third-largest internet service and fixed voice provider in New Zealand and owner of both the Slingshot and Orcon brands.

Geoff Horth

M2's management said the acquisition is expected to contribute more than NZ$250 million in revenue and NZ$45 million in earnings before interest, tax, depreciation, and amortisation (EBITDA) in the 2016 financial year.

The deal includes a provision to alter the purchase price if the New Zealand Commerce Commission delivers an adverse ruling on the backdating of new regulated copper broadband prices, M2 CEO Geoff Horth said.

"We are thrilled to bring CallPlus into the M2 fold at a time when it is delivering strong growth and profitability," Horth said.

Horth said CallPlus has around 18 percent of the New Zealand broadband market, and is well positioned to take advantage of market changes flowing from the rollout of the government-backed Ultra-Fast Broadband (UFB) network.

That rollout has the capacity to "break incumbency", he said, and CallPlus is a true national player in the market with connections to all 24 UFB points of interconnection.

Horth said the two companies have had a long association, with CallPlus a wholesale supplier to M2's existing New Zealand business Black+White, which it acquired in 2010.

"This is a substantial, highly earnings accretive transaction, which again illustrates M2's commitment to continue to increase returns to our shareholders, via both organic and acquisitive expansion."

CallPlus will remain a self-contained operating business, Horth said, and existing management would remain in place under CallPlus' long-term CEO Mark Callander.

M2 will fund the buyout and refinance existing debt through new multi-year loan facilities. However, Horth said M2's level of leverage remains reasonable for a business of its size.

"We are not stretching the balance sheet too far," he told press and analysts.

The acquisition is expected to complete on or before June 30, 2015, subject to approval by the NZ Overseas Investment Office and other conditions.

Looking at precedents, Horth said he doesn't envisage any impediments to completing the transaction.

CallPlus was founded by Annette Presley and Malcolm Dick in 1996.

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