iiNet confirms AAPT buy, exits trading halt

ASX-listed iiNet (ASX: IIN), has become Australia's second largest ADSL2+ Internet service provider as the result of the $60 million acquisition of AAPT's consumer division from parent company, Telecom NZ.

The acquisition will see iiNet inherit AAPT's 113,000 customers and 364,000 total active services with bundling included, bringing the larger ISP's broadband customer base to more than 652,000. It will also have more than 1,326,000 active services as part of the acquisition.

The expanded customer base means iiNet will exceed Optus in the total number of DSL subscribers it has, bringing it to the second largest ISP for ADSL2+, behind Telstra's 2,244,000 subscribers. Optus remains the second largest ISP in Australia due to its hybrid fibre coaxial (HFC) network which it offers to broadband customers alongside DSL products.

Existing AAPT subscribers are expected to be gradually transitioned to the iiNet network over a 12-month period. iiNet will acquire all customer service aspects of the business as well, including a recently off-shored customer support centre in the Philippines.

However, it will not acquire the AAPT brand, putting existing customers' plans and bundling offers at risk of cancellation.

iiNet's announcement ends a week of rampant speculation in which Telecom NZ (ASX: TEL) signalled the sale of varied AAPT assets. The New Zealand incumbent telco yesterday announced the $9.9 million sale of its stake in Macquarie Telecom, and this morning requested a trading halt on both the Australian and New Zealand stock exchanges until next Tuesday.

In its request, Telecom NZ said it was asking to be put into pre-open status “pending the outcome of discussions in relation to a disposal of assets”.

TPG, which recently acquired Pipe Networks for $373 million, was also believed to be in the stakes for purchase of AAPT assets. After iiNet yesterday requested a trading halt on its shares, however, speculation centred on the latter ISP.

Telecom NZ will retain AAPT's wholesale business and all DSLAM equipment. The wholesale business will refocus on Tier 1 network infrastructure for voice, data and Internet solutions.

The acquisition of AAPT's consumer division received unanimous approval by iiNet's board of directors, but is yet to be approved by the ISP's shareholders and remains subject to customary regulatory approvals. Both are expected to completed by September.

An ASX statement issued by Telecom NZ stated that the acquisition would see a net negative impact on AAPT’s FY11 EBITDA of around $AUD10 million.

As part of the agreement, Telecom NZ also announced the sale of its 18.2 per cent stake in iiNet to institutional and sophisticated investors for approximately $70 million.

The raft of asset sales announced this week will see the NZ incumbent telco receive appoximately $140 million in sale proceeds.

“Together these transactions rationalise non-core assets, strengthen Telecom’s financial position, and help reposition AAPT’s operations into a focused, network-centric wholesale and corporate business that is well positioned for future growth” said Telecom NZ chief executive officer, Paul Reynolds, said in a statement.

Additional reporting by Trevor Clarke

Copyright © 2010 IDG Communications, Inc.

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