Who wants to buy telco AAPT?

Telecom New Zealand (ASX: TEL) has put its Australian telecommunications company AAPT up for sale, in a deal that could be worth more than $400 million.

The Australian Financial Review (AFR) reports that Goldman Sachs is managing the deal, although nothing official has been released by Telecom. AAPT owns around 11,000km of interstate fibre optic cabling, its own data centres in major capital cities and has fibre access to 1,600 premises, according to Telecom’s latest annual report. AAPT also has access to DSL coverage in over 400 exchanges focused on major cities and large metropolitan areas.

But AAPT is a business that is going backwards at a rate of knots. In 2012, Telecom boasted that the company had more than 6,000 business customers and 300 wholesale customers. In 2013, Telecom says AAPT served more than 5,000 business customers. In 2012, AAPT reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $67 million. By 2013, that figure had fallen to $57 million, a drop of 14.9% driven by customer churn, pricing pressure and market consolidation, according to Telecom, despite emerging from a period of cost reduction and operational improvement.

AAPT has also seen its revenues drop steadily from NZ$900 million in 2011 to NZ$515 million in 2013, although the company did sell off its consumer division in September 2010.

The question is, who is the likely buyer of AAPT and its assets?

Australian telcos iiNet (ASX: IIN), TPG Telecom (ASX: TPM) and M2 Telecommunications (ASX: MTU) could all be potential buyers, although iiNet and TPG have their own fibre networks. M2, on the other hand, is forced to buy network capacity from the likes of Telstra Corporation (ASX: TLS), so it may be the most likely buyer.

Optus and Vodafone could also potentially be thrown into the mix, although both Telstra and Optus compete with AAPT for business and wholesale customers, so AAPT’s assets may represent duplicate assets, as well as attracting Australian Competition and Consumer Commission (ACCC) concerns.

Foolish takeaway

With a swathe of companies listing on the market amid the current popularity of IPOs, I wouldn’t be surprised to see AAPT list on the ASX although a cash sale is also on the cards.

Every Aussie investor knows Telstra, but only the smart money is on the move now… Discover whether you should buy, sell or hold Telstra shares in our brand-new report, written by a top Motley Fool analyst. It’s free, click here for your instant download!

More reading

Motley Fool writer/analyst Mike King owns shares in M2, TPG Telecom and Telstra.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.