ASX-listed ISP iiNet (ASX:IIN) has entered into a binding agreement with Telecom New Zealand to acquire the AAPT Consumer Division for $60 million.
The acquisition will be 100 per cent cash and debt funded, and will see iiNet gain 113,000 broadband subscribers and more than 251,000 other active services.
This will bring the ISPs broadband subscribers to more than 652,000 and offer more than 1.3 million services. In the first full year of the acquisition, iiNet expects AAPT to contribute $20 million in earnings before tax. It expects to migrate about 25,000 subscribers to the iiNet network, but this will not take place until 12 months after the acquisition is completed. This is due a wholesale arrangement the ISP has set up with the remaining AAPT business.
Under the deal, iiNet will acquire AAPT’s customer base, all the Web mail addresses and domain names, billing engine, key supply contracts, staff and its call centre based in Manila. It plans to keep all call centre staff on-board and a small element of the management team totalling 40 employees.
“The AAPT business has suffered from decline in the last couple of years and we’re not worried about it. We’re paying an absolute steal of a price for what we’re getting,” iiNet CFO, David Buckingham, said.
In a statement to the ASX, CEO, Michael Malone, said the acquisition presented an opportunity to acquire a subscriber base of scale in an increasingly consolidated market.
Under the agreement, iiNet will not acquire the AAPT branding and AAPT unlimited plans will cease to exist. Current customers on unlimited plans are unlikely to get forced off the deal but iiNet will not provide continued support for the plans.
“We might employ other tactics to make the other plans more attractive than the unlimited plans,” iiNet chief regulatory officer, Steve Dalby, said.
“We might provide access to other value adds that you can’t get on the unlimited plans, in which case, natural attrition would mean customers will move away from them.
“[Unlimited plans] doesn’t fit with our business model. We’ve looked at it in the past and decided against going down that path deliberately.”
The acquisition will be subjected to shareholder approval and a meeting is expected to be held in September.
All shareholders have been recommended to vote in favour of the planned acquisition. Speculation was rife on the ISP's intentions to acquire AAPT when it called a trading halt on July 29.
Telecom New Zealand previously retained an 18.2 per cent shareholder stake in iiNet, but has now sold that to institutional and sophisticated investors for about $70m.
It also sold its 10.1 per cent stake in Macquarie Telecom.
The two sales will generate about $140 million for the telco.
“Together these transactions rationalise non-core assets, strengthen Telecom’s financial position, and help re-position AAPT’s operations into a focused, network centric wholesale and corporate business that is well positioned for future growth,” Telecom CEO, Paul Reynolds, said.
The acquisition comes on the back of iiNet’s financial results, which it expects earnings before tax will reach $76.9m for the financial year ending June 30. Net profit is expected to top $34.6m. iiNet will announce its full year results on August 16.
iiNet acquired Melbourne-based ISP, Netspace, for $40 million in March.