Vocus Communications has announced its acquisition of Nextgen Networks for AU$700 million, along with purchasing Nextgen Group's two subsea development projects, paying AU$134 million for the North West Cable System (NWCS) and AU$27 million for the Australia Singapore Cable (ASC) project.
The acquisition will see Vocus expand its extensive fibre footprint in Australia: Nextgen owns a 17,000km fibre backhaul network in Australia, including operating and maintaining more than 6,000km of the federal government's Regional Backbone Blackspots Program.
"The Nextgen Networks national fibre network is a world-class asset that brings to Vocus fibre access to 70 datacentres, fibre access to more than 1,100 buildings, and requires only AU$11.5 million of additional capital expenditure to bring our combined points of interconnect (POIs) to 112 of 121," said Vocus executive director James Spenceley.
Vocus has already connected 1,300 buildings to its 700km of fibre in Australia, as well as 4,200km of fibre in New Zealand.
The acquisition deal would also see Vocus acquire 100 percent of the ACS project, which was originally a AU$170 million 50-50 joint-venture deal between Vocus and Nextgen Networks signed in November to construct a 100Gbps 4,600km subsea cable connecting Perth to Singapore and Indonesia.
The NWCS, a proposed 2,000km subsea cable between Darwin and Port Hedland for the purpose of servicing the mining and offshore oil and gas industries in Western Australia, is expected to commence construction at the end of this year.
"The acquisition of Nextgen Networks, one of Australia's largest national fibre backhaul networks, provides Vocus with the missing piece in our existing infrastructure network," Vocus CEO Geoff Horth said.
"Owning this critical infrastructure will allow Vocus to connect its metropolitan infrastructure to Nextgen Networks' inter-capital fibre optic network, thereby connecting mainland capital cities to regional and remote areas on one owned network.
"In addition, the acquisition of NWCS provides significant near-term upside to expand Vocus' owned network offering."
Subject to clearance by the Australian Competition and Consumer Commission (ACCC), the acquisition is expected to be completed within three months, funded by a fully underwritten equity capital raising expected to raise AU$652 million.
Vocus expects to raise AU$452 million through a retail entitlement offer whereby shareholders can purchase one new Vocus share for every 8.9 existing Vocus shares held, and AU$200 million through the institutional placement of around 26.5 million new shares.
Shares under the institutional entitlement offer, which is open between Wednesday, June 29, and Thursday, June 30, will be priced at AU$7.55 per share, a 10.4 percent discount on their price on Monday. As they are renounceable, entitlements that are not exercised will be offered for sale on Friday, July 1.
Shares will be priced the same under the retail entitlement offer, which is open from Thursday, July 7 until Monday, July 18, with around 59.9 million new shares to be issued under both offers.
The remainder of the purchase price will be funded through existing syndicated debt facilities.
Vocus has estimated AU$30 million per annum in cost savings for the next three years, as well as a one-off implementation cost of AU$6 million, while capital expenditure savings will be around AU$8 million per year.
The communications company said it expects to report revenue of between AU$820 million and AU$835 million on earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$213 million to AU$218 million for the 2015-16 financial year thanks to growth in its corporate and consumer divisions.
Vocus in February reported a net profit of AU$27.37 million, a substantial increase of 202.5 percent over last year's AU$9.05 million, for the first half of FY16 on revenue of AU$176.28 million and EBITDA of AU$62.25 off the back of its AU$1.2 billion Amcom acquisition in June last year.
Earlier this year, shareholders of M2 also voted in favour of a merger with Vocus, with the two companies forming the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia, worth more than AU$3 billion.
The companies forecast combined revenues of AU$1.8 billion for FY16, as well as EBITDA of AU$370 million, with Vocus due to pay AU$8 million to implement the acquisition during the second half of FY16.