UPDATE / 6.30pm: CallPlus, NZ's third largest ISP, has bought Orcon, our fourth largest internet provider (see pie chart right for full market share figures).
Terms were not disclosed.
CallPlus outbid others, including WorldxChange (see below) to buy its rival.
One finalist in the bidding process confirmed to NBR that the Orcon was put on the block at at minimum $30 million — or the debt generated in Orcon's highly leveraged 2013 sale (one insider told NBR $20 million was owed to ASB, plus $10 million in vendor financing to former owner Kordia).
While he would not comment on the price, Mr Callander told NBR that CallPlus considered Orcon "had value beyond its debt."
The combined companies will have 13% of the NZ ISP market and a turnover of more than $200 million, 500 staff and 220,000 customers, Mr Callander says.
Asked about redundancies, Mr Callander said was only just starting to get into Orcon at the sort of level to make that decision.
"Orcon will continue to be run as a standalone business and will need to stand on its own two feet," he added.
"The Orcon business was purchased as is, where is, and we were more than happy with that."
Standalone brand, long term
The Orcon brand would be maintained long-term, Mr Callander said.
He pointed ot the fact the CallPlus group already includes multiple brands, including CallPlus (business), Slingshot (mass market) and Flip (budget).
Where does Orcon fit in? Its customers are "tech savvy, early adopters," the CEO said.
Behind the scenes, there will be moves to consolidate the two company's networks (while both wholesale from Chorus and others, they have also spent millions "unbundling" or moving their own broadband hardware into a number of phone exchanges).
Mr Callander said Orcon was behind on mobile, and would benefit from CallPlus smarts in the virtual mobile network operator (MVNO) market. On the flipside, Orcon's "Genius" IP telephony technology could potentially be deployed for Slingshot customers.
Privately-held CallPlus is majority owned by its chairman, Malcolm Dick. The next largest shareholder is his ex-wife Annette Presley, who holds a 33% stake.
Asked about future plans, Mr Callander said CallPlus had no plans to list, but could be on the prowl for other ISP, or ISPs plural.
"We've always said we're open to growing by acquisition."
Orcon sale: one-time lead bidder WorldxChange dips out; Snap explains why it decided to pass; CallPlus, 2degrees clam up
UPDATE / June 20: Two more players, WorldxChange and Snap, say they're no longer in the race to buy Orcon — leaving CallPlus which, (uncharacteristically) won't comment and 2degrees (also no comment) as the two most obvious candidates.
NBR understands Orcon staff were told the identity of their new owner this morning. An announcement is close.
Paul Clarkin, who owns WorldxChange, tells NBR "I can confirm that not only were we involved in the bidding process but up until two weeks ago we were the actual preferred bidder with the lead bid."
Although restricted in what he can say by a non-disclosure deal, Mr Clarkin says he believes a deal has now been done with another party and that Orcon will make an announcement shortly.
Asked how much WorldxChange bid, Mr Clarkin replies only "Less than the bloke that finally bought it."
Orcon has around 60,000 customers, giving it 5% of the ISP market by a Commerce Commission estimate (see pie chart top right).
WorldxChange is a smaller but well-regarded telco and broadband provider, favoured by power users.
Mr Clarkin says it has around 50,000 customers including 5000 UFB customers "as well as 20 government agencies and some of the largest corporates such as IAG."
Snap out of it
Another high-proflie second-tier ISP has also ruled itself out.
Mark Petrie, owner and CEO of Snap (which has around 30,000 customers), tells NBR his company was initially interested, but is no longer involved in the sales process.
"Initially it looked a great opportunity to supercharge our growth plans from 30,000 to 90,000 customers," Snap general manager James Koers elaborates.
"But only at right price of course.
"One of our biggest concerns is that it would have potentially unbalanced our own business.
"The retail ISP game is pretty brutal and we've been very careful over the past few years to make we have balanced growth between consumer and business."
NBR understand a price of $30 million was put on the table, a non-starter for Snap given it represented five times the ISP's current cost of customer acquisition.
An unconfirmed source tells NBR that Orcon staff were told of the outcome of the sales process this morning. See discussion of other potential buyers, including CallPlus and 2degrees, below.
The current owners
Orcon is currently 48% owned by Semple Investments (in turned owned by Warren Hurst and his business partner Tony Reimann, previously the owners of business ISP Vivid Networks, which was rolled into Orcon).
The other 52% is owned by anonymous investors through a nominee. Orcon's directors are Mr Hurst, Maurice Kidd (a former executive at Eric Watson's Cullen Investments), House of Travel CEO Mark O’Donnell and Yellow Pages CEO Michael Boersen.
The group bought Orcon from Kordia in April last year in what NBR understands was a highly-leveraged $36 million deal, with a $10 million loan from Kordia and $20 million from ASB Bank helping to fund the deal.
Snap's Mr Koers would not comment on whether a buyer would be expected to take on Orcon's debt.
Orcon sale: Trustpower breaks silence; CallPlus clams up
JUNE 19: One of the more obvious candidates to buy Orcon tells NBR it has pulled out of the race.
Trustpower general manager of business solutions and technology Simon Clarke this afternoon told NBR his company had been approached by Orcon's owners earlier this year.
It took a look at the ISP, "But we're no longer involved in any negotiations," Mr Clarke says.
Trustpower has been quietly bundling broadband for eight years, but with the rise of the UFB has started to push harder. In May, the lines company said it had cross-sold 35,000 of its 220,000 customers to broadband, and didn't rule out a bid for Orcon.
Another potential buyer, CallPlus, is playing coy.
Chairman Malcolm Dick and CEO Mark Callander are usually not short of an opinion on any topic, but have not returned NBR's messages today. CallPlus has around 8% of the ISP market. Adding Orcon's 5% (around 60,000 customers) would give it a bump in scale — although it would still be some distance from Vodafone, which holds around a third of the market (see pie chart top right). The question will be whether Mr Dick — a veteran of the ISP wars — will be willing to take on Orcon's estimated $30 million debt, whether he will bide his time to see how the situation develops, if he's going to try and cherry pick assets, or whether he's simply not interested.
Sky TV is also out of the picture. The pay TV provider had been rumoured as a potential Orcon buyer, but yesterday CEO John Fellet told NBR the company has no interest in the ISP business.
Vodafone NZ has also ruled itself out. CEO Russell Stanners told NBR his company had a sniff during the early stages of the process, but decided not to proceed to due diligence.
2degrees is another player. Research company IDC says the telco's lack of a fixed line offering is costing it contracts in the business market. Earlier this year, 2degrees confirmed to NBR that it's interested in a fixed line play, but emphasised that it might be a partnership rather than a purchase. It would not comment on whether it was involved in talks with Orcon (a position a spokeswoman reiterated this afternoon). I think it's likely 2degrees will make some kind of move in this space, but I'm not sure it will involve Orcon. Bear in mind 2degrees is currently in the middle of a major cap-ex committment — its 4G rollout.
Another rumoured buyer — Voyager NZ founder and one-time Orcon owner Seeby Woodhouse — is understood to have had a degree of interest, but to no longer be involved in any talks. Mr Woodhouse founded Orcon and sold it to state-owned Kordia for $24.3 million in 2007.
The Warehouse was also a rumoured buyer, with IDC noting retailer-ISP hookups in the UK. But CEO Mark Powell immediately ruled his company out, saying it had zero interest in any ISP.
And another option, of course, is no takers.
In April last year, state-owned Kordia sold Orcon to a group of private investors, led by Vivid Networks' Warren Hurst in what NBR understands was a highly-leveraged $36 million purchase, with a $10 million loan from Kordia and $20 million from ASB Bank helping to fund the deal.
Late February this year, it was revealed by NBR that Orcon had retained investment bank Grant Samuel. Orcon CEO Greg McAlister said Grant Samuel was exploring all options, including a full sale.