2degrees parent in trading halt amid merger talks with Vocus

There has been another strong indication that 2degrees-Vocus NZ merger talks are in the works.

2degrees’ Toronto-listed majority owner Trilogy International Partners was placed in a trading halt at 8.09am NZT this morning “pending news”.

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The halt followed a 21 per cent jump in Trilogy’s shares.

As first reported by the Herald yesterday, plans for a 2degrees’ IPO have been put on pause as the telco enters merger talks with Vocus NZ.

2degrees confirmed the pause. Vocus Group declined to comment. The tip came from a well-placed source in the M&A community, with a solid track record.

If a 2degrees-Vocus NZ merger did gain approval, it would create a company that was worth around $2.3 billion – combining Vocus’ strength in broadband and business with 2degrees’ consumer mobile base to form a stronger number three competitor to Vodafone NZ and Spark.

A spokesperson for 2degrees said, “All I can share is that our IPO has been paused. It’s a matter for our shareholders.”2degrees’ majority shareholder, the Seattle-based, Toronto-listed Trilogy, had no comment. A spokesperson for Voyage Australia – which bought Vocus NZ parent Vocus Group in July – said, “At this time, we decline to comment.”

Any takeover or merger deal would mean the end of 2degrees’ proposed IPO as well.

The two operations form a natural complement.

2degrees is strong in consumer mobile but has relatively modest fixed-line broadband and business segment revenue.

Vocus’s NZ operation – which includes the Orcon, Slingshot, and Stuff Fibre retail ISP brands, plus a nationwide fibre network and a wholesale business that includes provisioning Sky Broadband, as well as a small power retailer -is weak in mobile (a market it serves through a wholesale agreement with Spark) but strong in broadband where it is the third biggest player in fixed-line broadband, with around 226,000 customers.

Vocus and 2degrees’ paths are said to have crossed before.

In late 2017, Vocus Group put its NZ operation up for sale. The two final bidders were said to be Trustpower, plus 2degrees in concert with a private equity sale. But new Vocus Group management pulled the NZ business off the table in 2018, amid talk that neither Trustpower nor 2degrees were willing to meet an asking price of around A$500 million.

In no-deal roadshows with investors on both sides of the Tasman, neither company has confirmed NZX or dual ASX/NZX plans – but with Vocus NZ expected to list at a market cap of around $800m, and 2degrees around $1.5 billion, the apparent scrapping of the pair’s plans represents a lot of lost potential business for the local bourse.

If both IPOs do evaporate, it won’t be the first time the NZX has missed out on a telco listing.

In 2019, Vodafone’s NZ business initiated a major restructure ahead of a proposed NZX listing – only for it to be headed off at the last moment by a $3.5b trade sale to Infratil and Brookfield Asset Management.

And earlier this year, then ASX-listed Vocus Group hired managers for a proposed spin-off and NZX listing of its New Zealand business.

But that proposed IPO was scuttled when Vocus Group was bought by Voyage Australia – a joint venture between Macquarie Group subsidy Mira and Aware Super.

After closing the deal in July, Voyage reanimated plans to spin out Vocus’s NZ business, hiring Goldman Sachs, Forsyth Barr and UBS to manage a possible float.

A non-deal roadshow kicked off in the last week of September.

Leaked presentations, which a Vocus insider did not dispute, said Vocus NZ would list at a value of between $598m and $783m – or between 8x and 11x ebitda. (Spark is currently trading around 9x operating earnings and the wholesale-focused Chorus at around 6x.)

An investor deck included a plan to rebrand as Orcon Group if the listing went ahead.

2degrees’ plans have also been quite advanced.

Trilogy announced plans to explore an IPO or trade sale for 2degrees earlier this year.

Jarden, Macquarie and Craigs were subsequently hired to run a non-deal roadshow.

In July, 2degrees named ex-Port of Tauranga chief Mark Cairns as its chairman-in-waiting should its IPO go ahead. Last week it revealed the makeup of its whole board – which included Trilogy founder John Stanton, the US billionaire who also sits on the global boards of Microsoft and Costco.

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