TeamTalk to buy Farmside for up to $42.1m in rural push

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UPDATE: Vodafone says its business partnership with Farmside will continue under new owner Team Talk.

"We have a partnership with Farmside and we also have a good relationship with Team Talk. Nothing will change as a result of the announcement today," a spokeswoman said.

Farmside is a wholesaler for the $300 million Rural Broadband Initiative being rolled out by Chorus and Vodafone.

Farmside also has a mobile virtual network operator (MVNO) contact with Vodafone, allowing it to sell Vodafone's mobile service rebadged as Farmside.

CEO Richie Smith told NBR today that Farmside has 15,000 customers.

TeamTalk, the owner of the CityLink fibre-optic broadband service, wants to buy rural telecommunications provider Farmside Group for up to $42.1 million as it looks to grow its footprint beyond urban areas.

The Wellington-based company has agreed to buy Farmside for an upfront payment of $19 million in cash and $12 million in TeamTalk shares, with an additional $7 million cash and $4.1 million in scrip in potential earn-outs over the following 12 months, it says in a statement.

The deal is subject to shareholder approval, with a special meeting expected to be held on December 11.

"The purchase is an opportunity to grow both businesses by building on what each does best," managing director David Ware says. "I'm confident our shareholders will see value in this acquisition and we look forward to welcoming the Farmside staff and customers to TeamTalk."

The Wellington firm indicated it was keen on acquiring new businesses at last week's annual meeting and will continue to seek other add-ons for the group.

Provided the deal gets shareholder approval, Farmside will operate as a subsidiary of TeamTalk and continue to be based in Timaru. Farmside's sellers will also be entitled to appoint a director to the TeamTalk board.

"Once the acquisition beds in, TeamTalk anticipates implementing initiatives for cross selling and other revenue enhancing programmes," the company says in presentation notes published on the stock exchange.

"While not a key driver of the transaction, operational synergies are also likely to be available in the longer term."

The acquisition will almost double TeamTalk's revenue, with Farmside reporting sales of $25.4 million in the 12 months ended June 30, some 43% of pro-forma revenue.

Still, the rural telecommunications firm's margins are not as fat as TeamTalk's, with pre-tax earnings of $2.1 million, or about 20% of pro-forma earnings before interest and tax.

The transaction will cost some $800,000 and increase the group's bank debt to some $35.8 million.

TeamTalk shares slipped 0.4% to $2.61 and have grown 19% this year.


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7 Comments & Questions

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TTK is an owner operator company so presumably the owners don't want to slit their own throats.

But as presented, the reported EPS falls from 23cps to 18cps or less if this deal goes ahead. TTK price should fall by 50c based on that.

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It's an uphill battle for Farmside - perhaps why their shareholders wanted an exit. Satellite, the core of their business, is a product farmers just don't like. The new Vodafone wireless product is one that's not living up to its 5mbps promise (Farmside had been advertising it as a 3mbps product).

Unless Farmside is able to wholesale an LTE product when it comes (by no means guaranteed) they're screwed in the rural Market. Vodafone and Telecom will eat their lunch.

Kind of like how CityLink is screwed by UFB. Same product, hugely lower cost.

Ouch. Flee TTK.

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TeamTalk have a strong rural presence and I think a good brand with rural. It'll be interesting to see how they can leverage the capacity they have on their new intersite links as traffic volumes fall from their analog radio network. 1.7x revenue and 20x ebit is a bit steep with limited real cost saving. Theres probably more to this than meets the eye, but that speculation doesn't justify share price staying high. Vodafone are going to be preoccupied with swallowing Telstraclear.....

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This looks like a good deal. Niche markets, good growth and cash generation to boot. I'll be topping up my TTK holding.

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As a previous satelitte broadband customer, I would never go back. The mobile networks are providing broadband to rural areas in a far more satisfactory way that is less capital intensive.

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Why is it only the discontented that comment on these things? In my experience satellite is way better than the alternative (which often times is nothing or dial up - which is the same as nothing). Thank you Farmside for delivering when no-one else would. My broker has been pushing me to buy TeamTalk - I might just start listening to what he has to say.

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A bad buy, a dying product being sold by Farmside. Would have been wise to wait and pick up the customers rather than buying the company. Customers would jump the ship once RBI is widely available as Customers are frustrated with Farmside and their high charges over the years

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