July 12 (Bloomberg) -- Vodafone Group Plc, the biggest mobile phone operator in New Zealand, agreed to buy Telstra Corp.’s local unit for NZ$840 million ($668 million) as it challenges fixed-line leader Telecom Corp. of New Zealand Ltd.
The agreement includes TelstraClear Ltd.’s voice and data services, network infrastructure and customers in New Zealand, Melbourne-based Telstra said today in a statement. The cash purchase is expected to close before the end of the year subject to regulatory approval, Vodafone said in an e-mailed statement.
Vodafone, which is seeking to win customers as the nation expands high-speed Internet services with a new fiber network, is paying about 6.3 times TelstraClear’s total earnings before interest, tax, depreciation and amortization in the year ended June 2011. That compares with the 5-times-earnings average of 68 deals for integrated phone companies announced in the past five years, according to data compiled by Bloomberg.
“The deal premium paid for TelstraClear highlights the importance of this asset to Vodafone New Zealand,” Justin Diddams, an analyst at Citigroup Inc. in Sydney, said in a report today. “We see Telecom New Zealand facing increased competition from Vodafone,” wrote Diddams, who has neutral ratings on Telstra and Telecom.
TelstraClear has about 16 percent of the fixed-line residential Internet market, while Vodafone has a 13 percent share, with both companies trailing the 49 percent held by Telecom Corp., according to Citigroup.
Newbury, England-based Vodafone approached the Australian company about a potential sale of the unit, Telstra said last month.
“We see these businesses as very complementary,” Russell Stanners, chief executive officer at Vodafone New Zealand, said on a conference call today. “What you see is the leader in mobile teaming up with the clear number two in fixed.”
TelstraClear had sales of A$516 million ($525 million) in the 12 months ended June 2011, with earnings before interest, tax, depreciation and amortization of A$84 million. On a valuation that excludes TelstraClear’s inter-company transactions, Vodafone is paying 7.8 times Ebitda.
Telstra shares fell 0.3 percent to A$3.85 at the close of trading in Sydney, trimming their gain this year to 16 percent. Telecom gained 2.2 percent to NZ$2.58 at the close of Wellington trading. Vodafone shares droppped as much as 1.8 percent and were down 1.3 percent as of 12.45 p.m. in London
Auckland-based Telecom said it’s “well positioned” to grow, even if rivals combine.
“Telecom New Zealand is in an extremely strong position to compete no matter if this acquisition goes through or not,” Acting Chief Executive Officer Chris Quin said in a statement.
Telstra is exiting New Zealand as it focuses on winning mobile and Internet customers in its home market.
“The transaction is consistent with Telstra’s overall strategy and capital management framework,” Telstra CEO David Thodey said in the statement.
Telstra will return about NZ$490 million in cash to Australia via a dividend before the deal is completed.
As part of the transaction, Telstra agreed with Vodafone New Zealand to ensure service continuity for its customers, the Australian company said.
TelstraClear was formed when Telstra bought British Telecommunications Plc’s New Zealand unit, Clear Communications Ltd., in 2001.
Separately, Telstra will take impairments of about A$130 million each in the 2012 and 2013 fiscal years because of unrealized currency losses, it said in the statement.
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