TeamTalk to sell controlling stake in Farmside

TeamTalk plans to sell a 70 per cent stake in Farmside to Vodafone. Photo / File

Unprofitable telecommunications minnow TeamTalk plans to sell a 70 per cent stake in its problematic Farmside rural internet services provider to Vodafone New Zealand 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 $10m in cash, with an option to buy the remaining 30 per cent for $3m at any time within the next three years, provided certain criteria are met. The deal values Farmside at $13m, a premium to the $9.6m-to-$12m range placed on the unit in the independent adviser's report by Grant Samuel, however it's less than half the $31m cash and scrip deal TeamTalk paid upfront 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 in a statement. "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 $22.7m 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.

TeamTalk has struggled to integrate Farmside into its business since the acquisition in early 2013, leaving it with more debt but flat earnings. Last year it said it wouldn't pay a dividend because a new satellite deal for Farmside for better internet speeds would need "substantial capital requirements".

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