Vocus New Zealand on the block as Aussies bail

Vocus is preparing its New Zealand assets, which include mobile, broadband, and energy offerings, for sale by June 2018, while also exploring the sale of its ‘non-core Australian assets’ including datacentres.

Source: Vocus to sell New Zealand assets | ZDNet

The Australian parent is in trouble. As is so often the case, the people at the top decides to get rid of the New Zealand operation. After years of telling us otherwise, Vocus New Zealand is suddenly “non-core”.

Vocus New Zealand has been performing well. If anything it has done better than the Australian business.

The company’s annual report to shareholders shows the facts:

• New Zealand revenue up 123 percent.
• The consumer business is up 186 percent.
• EBITDA up 103 percent in NZ dollars.
• Average broadband revenue per customer is $71.
• In the most recent quarter Vocus NZ had an 18 percent share of new UFB connections. That’s punching way above its weight.

Where are the buyers?

The problem for the Australian parent is there is not a conga-line of potential buyers waiting to snap up New Zealand telecommunications assets. That is, as always, except at fire sale prices.

It’s possible parts of Vocus might find willing buyers. Taken as a whole it is most likely too big for a single NZ telecommunications industry player to swallow whole. We’ve seen  the problem Vodafone had absorbing Telstra-Clear. 2degrees did a fine job integrating Snap. But that deal was at least an order of magnitude smaller.

Vocus is New Zealand’s fourth largest retail telco. It comes in behind Spark, Vodafone and 2degrees.

If the stories about a pending IPO are correct, you can rule out Vodafone as a buyer. Spark and 2degrees are also unlikely buyers, for different reasons. Although all three might like to rip juicy morsels from the carcass.

There may be regulatory reasons why none of the three bigger retail telcos would want Vocus.

Vocus New Zealand options

Which leaves three plausible options. The first is that the parent company has a big overseas buyer in mind. At times like these China often gets mentioned. Maybe that’s a possibility. We know Chinese telecommunications executives have been window shopping in New Zealand in recent years.

A second option is for a private equity buyer to pick up the business. It can’t be ruled out, but Vocus New Zealand was already in the process of applying something similar to the kind of rationalisation private equity firms apply.

The other possibility is some form of management buyout. Of course, these three alternatives are not mutually exclusive. And there is some smart telco investment money in the country. At least some of that will be from those who cashed out during the last five years of industry consolidation.

One thing is likely, the parent company might struggle to get back all it has invested in Vocus New Zealand.

The New Zealand telco sector has barely stopped to catch its breath since the government stepped-in with its nationwide ultrafast fibre programme started. That triggered a wave of merger and acquisition activity which is not over yet. It’s likely to be a busy year for the industry.