The new shape of 2degrees
Trilogy International Partners (US): 57%
CVP (UK): 28%
Hautaki Trust (NZ): 13%
KLR Holdings (Hong Kong): 2%
US telecommunications investment company Trilogy International Partners has been cleared to take a 100% stake in
The new shape of 2degrees
Trilogy International Partners (US): 57%
CVP (UK): 28%
Hautaki Trust (NZ): 13%
KLR Holdings (Hong Kong): 2%
US telecommunications investment company Trilogy International Partners has been cleared to take a 100% stake in 2degrees, should it want to take up.
The Overseas Investment Office (OIO) released details of its green-light decision today.
The decision is also noteable for revealing the closely held-company’s value: $170.1 million.
So far, a clutch of iwi, US, UK, Hong Kong and other investors have spent upwards of $250 million (according to Commerce Commission figures) on building 2degrees’ network and other start-up costs.
Creeping up
Trilogy, led by multi-billionaire Forbes rich lister John Stanton, had been seeking to raise its stake in 2degrees from 52% to 56%, taking up new equity that existing minority shareholder Hautaki Trust could not afford.
The US company has now completed this transaction, with Hautaki’s diluted stake falling to 12.7% (fellow investor CVP claimed the balance of the shares not claimed by the iwi trust, increasing its holding from 26% to 28%).
Surprise!
But here’s the surprising bit - and, certainly, it surprised a local 2degrees exec when NBR broke the news this afternoon - the OIO’s decision (originally made January 22) cleared Trilogy to acquire up to 100% of 2degrees’ shares.
100% flexibility
Interpreting the OIO decision for NBR, Chapman Tripp partner Roger Wallis said that it was a common practice to seek consent for up to 100% ownership.
Often this was to give a company flexibility.
“It does not [necessarily] follow that there is any specific transaction to acquire 100%, and the consent does not commit Trilogy to do so,” said Mr Wallis.
“Rather the decision indicates Trilogy may increase its holding through rights issues (where others might decide to not take up their shares) as it sees fit, or if other shareholders decide to sell.”
It was a June $20 million rights issue, and Hautaki’s inability to raise $20 million from iwi or mainstream investors, that sparked Trilogy’s latest bid to raise its 2degrees holding.
The US company began 2009 with a 26% stake.
Trilogy chairman John Stanton talks to Auckland mayor John Banks (back to camera) during a recent visit to Auckland.
The financial ... and the political
NBR’s take: Trilogy may well take advantage of any opportunity to increase its stake.
That’s a good thing. We need more telco competition, and when Hautaki tried to shop the $20 million rights issue, no Kiwi investor was willing to put their hand up (and, incidentally, 2degrees staff were fuming yesterday at John Key’s comment that recent XT outages illustrated why Maori had considered telecommunications too risky an investment. One 2degrees staffer said regulatory uncertainty - of which there is certainly a ton - had more to do with it.)
Te spectrum
Yet neither is it likely that Trilogy would, say, want to hover up all of Hautaki’s shares, should the trust wish to exit (of which it shows no current inclination).
Afterall, Hautaki brought something better than cash to the 2degrees party: government-granted 3G spectrum.
And sometime over the next two or three years, Communications Minister Steven Joyce (or his successor) will have to decide how to dole out (or auction off), radio spectrum that will be freed-up by the pending analogue TV switch off.
A slice of this spectrum has already been reserved for 4G telco services - and, historically, spectrum has been allocated on a political as well as commercial basis.
So it could well be in Trilogy’s interests to keep 2degrees a little bit Kiwi (I should add that Trilogy does more than pay lip service to local interests in the various countries it operates; Mr Stanton recently received a US State Department award for a micro-enterprise scheme his company runs that sees 15,000 Haitians selling cellphone air time).
Meet Johnny Foreigner
As an aside, some of 2degrees’ foreign investors aren’t, in terms of their residential arrangements, as foreign as they look.
KLR is the family investment vehicle of 2degrees founder and current commercial and regulatory strategist Tex Edwards, who lives in Auckland.
And CVP’s principal, Andrew Scott, recently repatriated from London to Auckland.
Telecom - all Kiwi, for better or worse
New Zealanders are clearly benefitting from 2degrees’ ability to tap off-shore investment.
The telco will shortly to start building its own network beyond Auckland, Wellington, Christchurch and Queenstown (elsewhere 2degrees currently has a roaming agreement with Vodafone).
It will shortly begin to upgrade all its cellsites to 3G, giving Kiwis more choice at the high-end of the mobile market.
And 2degrees maintains a local call center. Nice.
Could Telecom, squashed by its capex bubble, also benefit from some moneybags foreign owners? Obviously it didn’t go quite so well last time around, but it wouldn’t have to be a majority stake, as with the ill-fated Bell Atlantic and Ameritech pillage.
Anyhow, that’s all academic. They’ll be none of that wild and crazy global market capitalism here. Back in June, Communications Minister Steven Joyce said “there are no plans to further loosen the rules around foreign ownership of Telecom.”
As legislation currently stands, no foreign party can take more than a 10% stake in Telecom without the government’s permission, and half of its directors must be New Zealand citizens.
