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TeamTalk to sell Farmside stake

NZN 23/03/2017 Paul McBeth

Unprofitable telecommunications minnow TeamTalk plans to sell a 70 per cent stake in its problematic rural internet services provider Farmside to Vodafone for $10 million, almost half what Spark New Zealand is willing to pay for the entire group.

Wellington-based TeamTalk today said it's reached an agreement with the county's second-biggest broadband provider to sell a 70 per cent stake in Farmside for $10 million in cash, with an option to buy the remaining 30 per cent for $3 million at any time within the next three years.

The deal values Farmside at $13 million, a premium to the $9.6 million-to-$12 million range placed on the unit in the independent adviser's report by Grant Samuel.

However, it's less than half the $31 million cash and scrip deal TeamTalk paid up front for the company almost five years ago.

"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," chief executive Andrew Miller said.

"It also enables us to strengthen our partnership with Vodafone, a significant provider to rural New Zealand."

The deal, which needs shareholder approval, 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.

Spark can back out of the offer as the Vodafone deal would breach one of its conditions not to sell assets worth more than $500,000.

However, TeamTalk's CityLink fibre assets are seen as the cornerstone business driving the acquisition, given the larger telecommunications company's plans to beef up its own infrastructure and reduce its reliance on Chorus.

Vodafone chief Russell Stanners said the deal provided his company the "opportunity to deliver better outcomes for rural customers, to increase our presence in the rural broadband market and to utilise the skill-sets of the two complementary companies" and paved the way for other tie-ups such as sharing fibre.

The shares rose 3.6 per cent to 86 cents in early trading.

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