Spark NZ (NZX: SPK) completes 70% sale of TowerCo to Ontario Teachers’

Highlights

• Spark NZ completes a 70% sale of TowerCo to the Canadian company
• The sale has been completed after the Overseas Investment Office gave a nod
• Total sales proceeds from the deal are pegged at NZ$900 million

New Zealand’s telecom operator and digital services provider, Spark NZ (NZX: SPK ), announced today (14 October 2022) that it had completed the sale of a 70% interest in its cellphone tower business, TowerCo, to the Canadian company, Ontario Teachers’ Pension Plan Board (Ontario Teachers’).

The transaction was pending approval of  the Overseas Investment Office, and after that was received, the sale was announced as completed today. As per the Spark, its TowerCo business is a leading New Zealand tower business with approximately 1,263 sites under its operations.

As announced earlier on 12 July 2022, Spark expects net cash proceeds of NZ$900 million at completion.

As per the deal's terms, Spark will continue to determine how its mobile network is developed, including where and when capacity investments occur, with TowerCo then designing and deploying these build programs.

Further, as per the details, Spark has entered into a 15-year agreement with TowerCo to secure access to existing and new towers, with a commitment to build 670 more sites in the next 10 years.  

Spark would return a part of the proceeds to the shareholders and a part would be invested in future growth opportunities, as the company is moving from a traditional telecommunications provider to higher-growth digital services.

Justine Smyth, Spark chairman, said that the establishment of TowerCo would accelerate Spark’s strategic objective of delivering a smart, automated network while maximising value for shareholders.

As announced by Spark previously, it intends to return up to NZ$350 million to the shareholders through an on-market share buy-back program, the details of which will be finalised by the board soon.

Jolie Hodson, Spark CEO, said that the company’s strategic partnership with Ontario Teachers’ will enable Spark to benefit from its significant experience in managing a portfolio of infrastructure investments globally, including within Australia and New Zealand.

Bruce Crane, senior managing director of Ontario Teachers’, said that the acquisition of a 70% stake in TowerCo was an ideal fit for its growing global portfolio of high-quality infrastructure assets.

FY22 performance

In its results announced on 24 August 2022, the company reported a 7.6% jump in its net profit to NZ$410 million by 30 June. The revenue was up 3.5% to NZ$3.72 billion, following a 0.8% decline last year. Its operating profit rose 2.8% to NZ$1.15 billion, which is in line with the company’s forecast.

Cash flow situation

The company further expects to generate surplus cash, known as free cash flow. In FY23, the company expects cash flow to be between NZ$460 million and NZ$500 million. The strong cash flow situation of SPK is on the back of the sale of 70% of its cellphone tower business to the Canadian company.

Dividends

SPK’s total dividend for FY22 is 25 cps, 100% imputed, but the company expects higher profits in FY23 and more cash flow, which it said would enable it to pay a higher dividend to its