M2 Telecommunications Group Ltd. (MTU) agreed to pay A$192.4 million ($199 million) for Primus Telecommunications Group Inc. (PTGI:US)’s Australian operations to add customers and infrastructure for Internet and phone services.
M2 will sell A$83 million in new shares at a discount and has set up a A$250 million bridge loan to fund the purchase and refinance existing debt, the Melbourne-based company said in a statement today. The all-cash transaction, expected to be completed June 1, will contribute to earnings in the financial year starting July 1, M2 said.
The purchase will add 165,000 customer contracts and allow the company to tap opportunities presented by Australia’s planned A$36 billion broadband network, M2 said. The combined entity will be the fifth-largest telecommunications company in the nation, after Telstra Corp., Singapore Telecommunications Ltd.’s Optus, Vodafone Hutchison Australia Pty. and IiNet Ltd., said Geoff Horth, M2’s chief executive officer.
“People will increasingly consume a broader range of services” such as cloud computing, Horth said on a conference call after the company’s announcement. “The things that we’ve acquired in this model tick the box on all those elements.”
The planned share issue is equivalent to 20 percent of M2’s current market value. Investors will be able to buy one new share at A$2.66 for every four already held, a 24 percent discount to the April 13 closing price.
M2 fell 4.6 percent to A$3.33 at the close in Sydney trading, the stock’s largest decline since Dec. 19. Australia’s benchmark S&P/ASX 200 index dropped 0.5 percent.
Adding Primus’s Internet infrastructure will help M2 service its core base of small-business customers, Horth said. About 52 percent of Primus’s sales are to individual households, leaving M2 with about a third of revenues from consumers rather than businesses, he said.
The company plans to maintain its current dividend payout ratio of 70 percent of net income after the acquisition. M2 also affirmed its forecast for profit to rise to as much as A$34 million in the 12 months ending June.
Net debt would total A$137.7 million, about 1.4 times the combined company’s earnings before interest, taxes, depreciation and amortization, based on the two companies’ results for the year ended Dec. 31, according to the statement.
The debt facility must be paid down at a rate of A$20 million annually over three years, Horth said. “That will absolutely be our minimum” level of repayment, he said.
M2 had net debt of A$9.7 million as of Dec. 31, according to data compiled by Bloomberg.
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