Telecom NZ unveils demerger details, CEO to leave
Telecom Corp. of New Zealand on Wednesday unveiled details of its proposed demerger and announced that it won't be paying a dividend before the demerger, and that current chief executive Paul Reynolds will leave after the separation next year.
The news sent Telecom's shares tumbling more than 10% in early trade. Telecom, New Zealand's largest telecom operator by revenue, said its shareholders would receive one share in Chorus for every five Telecom shares, leaving its infrastructure unit, Chorus, with NZ$1.7 billion (US$1.4 billion) of debt. The company said the search for a new CEO will start in 2012 after Chorus has been spun off.
The company said on a pro forma basis for the year to June 30, 2011, Telecom without the infrastructure business would have earnings before interest, tax, depreciation and amortization of NZ$885 million, while Chorus would have EBIDTA of NZ$606 million.
"Today's news is a little disappointing and we will need to review our current Buy recommendation," Goldman Sachs analyst Martin Curley said in a note.
Curley said Chorus would be carrying a greater level of debt than it had expected.Macquarie equities broker Brad Gordon said investors were more interested in Chorus shares than Telecom's shares and news of the distribution plan had disappointed investors.
The separation of Chorus is part of the requirements agreed upon in a deal where Chorus will build the majority of New Zealand's nationwide fiber network.
Once separated, Chorus will get the copper network and the majority of exchange buildings, while Telecom will remain a retail business with the mobile network, the company's international businesses and its share in the fiber cable linking New Zealand, Australia and the U.S.The spinoff still needs shareholders' approval and further information is expected to be released in mid-September with the demerger expected to be completed by Nov. 30. Telecom and Chorus will be listed in New Zealand and Australia, with just Telecom continuing to be listed in the U.S.
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