Paul McBeth is the editor of Curious News and The Bottom Line, having worked at BusinessDesk for 15 years.
If you were to believe the headlines, Spark New Zealand’s soggy share price has caught the eye of a deep-pocketed US investment house, which is running the numbers on whether to have a bite at the country’s biggest telecommunications firm.
The theory should stack up.
The price has been in the doldrums for the past year as the telco kept missing earnings expectations, and its traditionally flush streams of cash to pay dividend-hungry shareholders have been pressing up against the senior leadership team’s ambitious – or misguided if you’re feeling uncharitable – attempt to plunder new rivers of gold in the oh-sexy-right-now data centre space.
Over the course of 15 months, Spark shed almost two-thirds of its value, bottoming out at $1.945 a share in March, valuing it at $3.67 billion at the time, a shell of what it used to be.
Since then, the price has been on the right track, closing at $2.305 on Friday for a market value of $4.35 billion, as the telco’s efforts to prove itself to investors and analysts bedded in.
Sticking to its word in February when it was challenged to keep its owners fully apprised of how its cost-cutting measures were tracking, the partnerships it’s been stitching up with multinational service providers – think Nokia, Infosys, and HP – have been hitting the mark and it hasn’t dissuaded analysts from believing in its ability to cut its operating spending line by as much as $140 million come the June 2027 year.
Bye bye bye
Spark sold its remaining stake of the mobile towers business, Connexa, and hived off minnow IT services firm Digital Island, and it’s in the final dash to find someone willing to buy half its data centre business, and the billion-dollar development bill needed to turn it into something big and beautiful.
That’s slowly seen a return of shareholders to its register, with more than 28,200 on the register – that doesn’t capture the extent of the Sharesies brigade’s backing – as 300 or so people returned to the telco, including the canny Cushing family a few months back
The institutions have been a bit more mixed.
The omnipresent BlackRock lifted its stake to almost 8.1% in March and the Accident Compensation Corp‘s investment arm built a 5.2% holding in the months leading up to February, whereas Milford Asset Management and FirstCape dipped below the 5% substantial threshold after the telco’s soggy earnings result in late February.
And the analysts have kept their knives at bay after some vigorous slashing of target prices in the wake of a disappointing result in February, followed soon after by S&P putting the telco on notice over its debt load with a negative outlook.
Don’t wanna be a fool for you
Meanwhile, there have been rumblings across the Tasman for some months that predatory private equity houses were circling the wounded telco.
The Australian’s DataRoom column reignited things again when it namedropped New York giant Kohlberg Kravis Roberts as running the numbers, which in US dollar terms would be about US$3.4 billion if it was to lob in an offer at a 30% premium, roughly $3, to sway its current owners.
KKR was first mooted by the column in December as a potential suitor, given it had just bought Telecom Italia and had previously snapped up Telefónica Columbia, although the Italian fibre company’s earnings shortfall might not necessarily be the best selling point for the sector.
And as Salt Funds Management’s Matt Goodson has pointed out, Spark’s efforts to get the telco back on the straight and narrow are typically a private equity buyer’s go-to moves in extracting as much value out of an asset as they can before flicking them on in a trade sale or relisting them in a public float.
Still, the rumours flared up in May and again last week, meaning there might be more than the idle gossip percolating when a company gets itself into a bit of strife. Especially given it triggered some hefty trading of the widely held shares.
It might sound crazy
That doesn’t leave too much on the table for a potential Spark suitor, with a carve-up of its swathe of assets seen as an option by the Australian whisperers, flogging off the data centres first then the fibre backhaul assets, followed by the raft of pies Spark has stuck its telco fingers into.
Those range from IT services and products such as its cloud, managed data and networks and security businesses, through to the digital identity MATTR startup, the Qrious big data business and the digital health foray it doesn’t talk too much about anymore.
In fact, the hodgepodge of businesses that’s swelled under the Spark umbrella does seem at times unwieldy and it’s somewhat perplexing that the group only ditched its Digital Island cloud-based contact centre unit when it ran the rule over what assets were in and which were for the chopping block last year.
There may well be more to come, but if there is in fact a great white shark circling a tired Spark, it might not be amiss for the board to think a little more deeply about whether it’s time to find a new home for a few more of them.
Image from Nicole Avagliano on Unsplash.