2degrees sells towers to rival for NZ$1 billion

2degrees has agreed to offload a portfolio of towers assets to Connexa, an entity part-owned by rival Spark, for just over NZ$1 billion.

The firm is the third of the country’s three mobile network operators to broker a towers deal, Spark and Vodafone having separately sold off majority stakes in their own passive infrastructure assets in July.

Spark sold a 70% stake in its towers business to the Ontario Teachers’ Pension Plan Board and the pair subsequently renamed the unit Connexa. 2degrees has now inked a transaction worth NZ$1.076 billion with Connexa for the transfer of 1,124 towers.

Spark is only involved in the deal to the extent that it holds a stake in Connexa, which is about to be diluted as a result. The incumbent said it will not contribute equity to the acquisition and as such its shareholding in the enlarged Connexa will fall to around 17% from 30% once the deal closes. Ontario Teachers; will provide funding for the deal and its stake will increase to approximately 83%, while Spark will retain its existing governance rights including board representation and, in its own words, “benefits from the value accretive expansion of the business.”

So again we have a telco keen to release value from its towers business, while still retaining a foot in the market with a view to cashing in on any future growth. And there should be plenty of that, given the stage we are at with the rollout of 5G mobile networks.

2degrees, meanwhile, is exiting the towers space.

“The network we have built is phenomenal, but towers and real estate is not where we innovate,” said 2degrees CEO Mark Callander. “What we do with the active network layer is key and will continue to be the focus of future investment – this is where we will differentiate and grow.”

Specifically, the company is talking about investing in 5G build-out and concentrating on growth, value-added services, customer experience and new product development. Or to put it another way, the things that tend to keep shareholders happy.

However, in 2degrees’ case those shareholders are Macquarie Asset Management and Aware Super, which perhaps makes the deal a little surprising, given the investment community’s ongoing love affair with passive infrastructure. But ultimately there’s nothing surprising about a mobile operator deciding that towers is not the place for it and looking to concentrate on its core business instead.

Under the terms of the deal, 2degrees will lease back its towers for a minimum of 20 years. The transaction also includes a commitment to build 450 new sites over the next 10 years.

The deal requires the approval of the Overseas Investment Office (OIO) and the Commerce Commission, but the parties seem confident of getting the green light, noting that they expect it to close in the middle of next year.

There is no reason to suspect that the authorities would look to block the deal. Spark contributed its 1,263 sites to the Connexa venture, while Vodafone spun off 1,484 towers into TowerCo, now 80% owned by InfraRed Capital Partners and Northleaf Capital Partners; there is no dominant player in the market. Connexa will take on the market leader role if and when the deal closes, but a strong competitor remains.

2degrees should be able to get this one over line relatively easily.

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