TPG Telecom Ltd (ASX: TPG) shares are catching the eye on Monday morning.
At the time of writing, the telecommunications company's shares are up 1.5% to $5.17.
Why are TPG Telecom shares rising?
Investors have been buying the company's shares this morning after it announced a binding share purchase agreement (SPA) to sell a number of assets to Vocus Group.
According to the release, Vocus Group will acquire TPG Telecom's fibre network infrastructure assets and Enterprise, Government and Wholesale (EGW) fixed business, including Vision Network. The two parties have agreed a deal for $5,250 million, which includes a potential $250 million contingent value payment.
TPG Telecom will retain its mobile radio network infrastructure, Consumer and EGW mobile business, and its Consumer and small office/home office fixed retail business, including fixed wireless.
As part of the agreement, Vocus Group will provide fixed network services back to TPG Telecom for 15 years for a fee of $130 million per annum. TPG Telecom also has two 10-year extension options. It notes that the deal has been designed to ensure that it maintains "owner economics" of the fibre network.
Based on its FY 2023 results, management estimates that the transaction would have reduced its EBITDA by $429 million to $1,494 million and EBIT by $198 million to $253 million.
What's next?
TPG Telecom and Vocus Group are targeting completion of the transaction in the second half of 2025. This is subject to satisfaction of conditions precedent, including regulatory approvals.
At completion, the company anticipates the transaction will deliver net cash proceeds of $4,650 million to $4,750 million.
The good news for shareholders is that TPG Telecom intends to use these proceeds to support future capital management, as well as business investment initiatives. However, details of such future plans have not yet been determined and remain subject to development.
Management expects to provide more detail to the market around the time of transaction completion.
Commenting on the deal, TPG Telecom's CEO, Inaki Berroeta, said:
We are pleased to announce this transaction and the successful conclusion of the strategic review of our fibre network infrastructure assets. The transaction reflects a smaller asset perimeter compared with the original discussions with Vocus in 2023, resulting in a simpler operating model than was envisaged in the original discussions.
The deal unlocks the value of our fixed infrastructure assets while strengthening our financial position and creating a more focused and streamlined business with significant optionality for the optimisation of our capital structure.
