Wednesday 02 November 2016 02:34 PM
2degrees to list on Toronto Stock Exchange in wider deal
By Pattrick Smellie
Nov. 2 (BusinessDesk) - New Zealand's third-placed mobile operator, Two Degrees Mobile, is to become listed on the Toronto Stock Exchange as part of a wider deal that sees its Canadian owners sell their 62.9 percent interest in the company into a new entity.
The transaction is being funded mainly by a recently listed Canadian cash-box, Alignvest Acquisition Corp (AQX), which raised US$202 million in an initial public offering on the Toronto Stock Exchange in June last year and has been seeking an investment opportunity ever since.
It has settled on taking a 51 percent stake in the new entity, which will combine with Trilogy International Partners, the private equity firm that owns almost two-thirds of 2degrees in New Zealand and 71.5 percent of Neuva Tel, a Bolivian mobile operator. Other 2degrees shareholders, including a Maori investment vehicle, Hautaki Trust with around 7 percent, will have an option to participate in the deal as well. Some 30 percent of 2degrees sits with a European shareholder, Tesbrit.
Trilogy's principals, chairman John Stanton and chief executive Brad Horwitz, have a track record of establishing successful wireless operators in the US prior to the New Zealand and Bolivian forays, and AQX said in its statement released to the Canadian market today the Trilogy management team would run the new entity.
As well as continuing to develop those two businesses, Trilogy "believe that there are a number of potentially attractive, synergistic acquisitions available".
The transaction produces an enterprise value for the combined majority shareholdings in the 2degrees and Nueva Tel of US$875 million, representing multiple of 7.3 times against forecast earnings before interest, tax, depreciation and amortisation of US$120 million, which AQX/Trilogy regards as "a significant discount to its peers". New Zealand's 2degrees declared ebitda earnings of NZ$78.5 million in the year to Dec. 31, on 43 percent revenue growth at $569 million for the year, although the company continued to report a net loss on a statutory earnings basis, at $33.1 million.
Proceeds will be applied to de-leveraging the balance sheet of the company, which will be known as Trilogy International, "and position it for continued growth organically and through acquisition".
That may include, for example, redemption of bonds issued to 2degrees by Trilogy, which would free up the 2degrees balance sheet to pursue growth.
The announcement ends speculation earlier this year that 2degrees was pursuing a possible dual-listing on the New Zealand and Australian stock exchanges.
To fund the deal, AQX says it has secured an additional US$61 million, with the transaction conditional on a minimum cash requirement of US$135 million, of which transaction fees of US$6.1 million have already been committed, with completion due in the first quarter of 2017.
Trilogy's existing management team are rolling up all their equity interest in the businesses into the transaction, tipping in an extra US$5 million of their own equity, and will own about 20 percent of the company.
Trilogy saw growth in the New Zealand business coming from continued market share and post-paid subscriber growth, expanded bundled solutions "to target the previously under-served business segment", and cross-selling fixed line solutions to the existing mobile subscriber base.