Australian telecom services provider M2 Telecommunications has laid out plans to acquire smaller telcos Dodo and Eftel in separate acquisitions for a total of A$248m (US$258m).
M2 will acquire Dodo for A$203.9m (US$212m) on a debt-free and cash-free…
Australian telecom services provider M2 Telecommunications has laid out plans to acquire smaller telcos Dodo and Eftel in separate acquisitions for a total of A$248m (US$258m).
M2 will acquire Dodo for A$203.9m (US$212m) on a debt-free and cash-free basis.
The separate off-market takeover offer for wholesale ISP Eftel implies an enterprise value of A$44.1m (US$46m).
Larry Kestelman and Michael Slepoy, who together founded Dodo, control both targets.
M2 said that it plans to fund the acquisitions, and refinance existing debt, through new fully underwritten three-year loan facilities of A$400m, and by issuing up to 19.2 million ordinary shares of M2 to Dodo and Eftel shareholders.
Melbourne-based M2 expects Dodo and Eftel to contribute more than A$400m (US$416m) in revenues and A$50m (US$52m) in EBITDA towards its full-year results in 2014. The company said this implies an indicative EBITDA valuation multiple for the acquisitions of approximately 5.0x.
It added that the acquisitions would impact underlying earnings for this year, and that revenues would be too the lower end of its guidance. M2 had said it expected EBITDA for 2013 to be between A$108m (US$112m) and A$118m (US$123m).
Goldman Sachs is advising M2 in relation to the acquisitions and is also the sole mandated lead arranger, underwriter and bookrunner for the A$400m (US$416m) acquisition facilities.
Dodo deal
Dodo focuses on Australia’s residential market offering broadband and fixed-line telephony, but it also offers wireless services, and gas and electricity. The consideration of M2’s agreement to buy privately-owned Dodo comprises cash and scrip.
A breakdown of the consideration was not disclosed but Dodo’s founders Kestelman and Slepoy may receive 10.5 million M2 shares on the completion of the deal.
M2 said it expects to complete the acquisition in early May and added that it was not conditional on the closure of the Eftel buy.
Eftel offer
With regards to Eftel, M2 offers A$0.36 (US$0.37) in cash for each Eftel share, or one M2 share for every 12.34 shares in Eftel. M2 said this represented a premium of 30.2% on Eftel’s 13 March closing price on the Australian Stock Exchange. The offer closes in early May.
The offer is conditional on 90% acceptance from Eftel shareholders. Together, Eftel and Dodo’s directors hold 88% of Eftel’s stock and they have indicated that they will accept the offer.
Eftel is an ISP providing DSL and dial-up Internet, web hosting, and VoIP. In addition it offers infrastructure and support services to other ISPs in Australia.
Provided the Eftel deal goes through Kestelman and Slepoy will receive a further 6.9 millions shares, which could give them a total of 17.4 million – equivalent to 9.8% of M2’s pro forma shares.
M2 has agreed a pre-bid option deed with Kestelman, which has granted M2 a call option over 19.9% of the issued Eftel shares that he controls.
“M2’s offer represents an attractive value proposition for Eftel shareholders,” said Kestelman.
“I intend to accept the offer and make an “all shares” election for all of the Eftel shares that I own or otherwise control, in the absence of a superior proposal.”
