Vodafone NZ has announced that it will be seeking approval to acquire 70 percent of Farmside, the rural broadband and satellite arm of small carrier TeamTalk, for NZ$10 million in cash as well as the option to acquire the remaining 30 percent for NZ$3 million.
Vodafone NZ CEO Russell Stanners said the offer, subject to approval by TeamTalk's shareholders, would allow the former to deliver improved services within the rural broadband market.
TeamTalk will continue running Farmside under a management contract after the sale, with the carrier saying the offer valued the business arm accurately and would reduce TeamTalk's overall debt position -- which amounted to NZ$33.2 million as of February 28.
"For TeamTalk, this transaction will enable a substantial reduction in debt, provides a clear path forward for Farmside, and further assists TeamTalk to consider the resumption of dividends to shareholders in calendar year 2018," TeamTalk CEO Andrew Miller said on Friday.
"The independent adviser's report, which was released on 23 March 2017 as part of TeamTalk's target company statement, valued Farmside in the range of NZ$9.6 million to NZ$12 million. The proposed transaction values Farmside at $13 million."
TeamTalk published the independent assessment on Thursday, using it to dissuade shareholders from accepting telecommunications carrier Spark's "predatory" and "exploitative" takeover by demonstrating that the proposed acquisition undervalues the company's worth to the tune of around NZ$22.8 million to NZ$39.6 million.
"The independent adviser's value range for TeamTalk's three businesses is NZ$85 million to NZ$103.2 million. Deducting a value for corporate costs (of NZ$6.3 million to NZ$7.7 million) implies a combined enterprise value of NZ$78.7 million to NZ$95.5 million. The Spark offer implies an enterprise value of NZ$55.9 million," TeamTalk said in a statement on Thursday.
"Therefore, the Spark offer is NZ$22.8 million to NZ$39.6 million lower than the independent adviser's assessment of the enterprise value of TeamTalk."
TeamTalk's directors said the acquisition offer takes advantage of the company's current value -- which is at its lowest point to date -- and ignores its new "turnaround" business plan, which is being led by a new CEO, CFO, and transformation officer and should lead to "strong profitable growth".
"The offer fails to reflect the standalone value to TeamTalk's new strategy, strong leadership, and forecast growth," TeamTalk argued.
"The offer price of NZ$0.80 per TeamTalk share fails to value TeamTalk's three businesses appropriately as separate components ... there are synergies and strategic benefits over and above the fair value of TeamTalk than an acquirer such as Spark would capture through integrating CityLink, TeamTalk Mobile Radio, and Farmside. Given the strategic nature of these businesses, TeamTalk shareholders should be compensated for a significant proportion of these benefits."
Spark CFO David Chalmers responded to TeamTalk's claims by saying the independent adviser's valuation of the company "lacks real-world credibility" and that its new leadership is mostly made up of those who were responsible for the company's current predicament -- which was partly caused by its acquisition of Farmside.
TeamTalk provides rural internet services under Farmside; metro fibre services across six cities under its brand CityLink; and digital mobile radio services under its main brand.
Under Farmside, TeamTalk is one of the largest resellers of the New Zealand government's Rural Broadband Initiative (RBI), and uses satellite, ADSL, and wireless technology to provide internet connectivity in regional areas. It also has a contact centre in Timaru with over 70 staff members.
Spark in February announced that it intended to fully acquire TeamTalk in an effort to expand its provision of internet services across the country, launching its formal takeover offer two weeks ago and saying it would be in the "best interest of TeamTalk shareholders".
TeamTalk's shareholders will ultimately decide whether to accept Spark or Vodafone NZ's acquisition offer.
The two carriers also recently butted heads over Spark's attempts to merge with pay TV provider Sky TV, which was ultimately declined clearance by the New Zealand Commerce Commission last month due to the competition issues in the mobile telecommunications and broadband markets mainly over the issue of premium sports content ownership.
After continually accusing Vodafone NZ and Sky TV of trying to squeeze the competition out of the wholesale premium live sport and entertainment content market, the retail residential fixed-line broadband market, the retail mobile broadband market, and the pay TV market, Spark even took the matter to the High Court, which ruled that there would be a short-term delay if the merger were to be approved.