Telstra stake in cable ‘done deal’
Spark says a deal for Telstra to buy a 25 per cent stake in Southern Cross Cable Network is now just days away from completion. The long-gestating deal was first announced last December.
And the telco has also confirmed that its once-wide rivers of gold from Southern Cross will dry up completely over the next two years as part of the drive to fund a new trans-Pacific cable, dubbed Southern Cross Next.
Going into the deal, the Bermuda-based Southern Cross Network — which runs the Southern Cross undersea fibre optic cable running between Australia, NZ and the US, was 50 per cent owned by Spark, 40 per cent by Optus and 10 per cent by Verizon.
The deal will see Spark’s holding diluted to “approximately 40 per cent” the telco said yesterday, depending on the final shape of the deal. Between 2000 and 2018, the Southern Cross cable was NZ’s only major broadband link to the outside world, and Spark’s share of the cable company’s profit was a major contributor to its bottom line.
In 2017, Spark received a $61m dividend from Southern Cross. But that fell to $50m in 2018 and just $15m this year amid new competition from the trans-Pacific Hawaiki Cable (whose directors and major investors include rich listers Malcolm Dick and Sir Eion Edgar, and 2degrees alumnus Tex Edwards) and the Tasman Global Access cable linking Auckland and Sydney (a joint venture between Spark, Vodafone and Telstra).
Forsyth Barr Matt Henry and Matt Dunn say competitive pressure and the ageing nature of the Southern Cross cable are behind the dividend squeeze — which was, in turn, blamed for Spark’s drop in overall profit in the first half.
Hawaiki has sharpened competition across the board and managed to snag major customers including Amazon Web Services and Vocus.
Yesterday, Spark confirmed that it would receive no Southern Cross dividend in 2020 or 2021. The news was first broken to Spark shareholders at Spark’s full-year result.
And new Spark CEO Jolie Hodson warned in an August 24 Herald interview that once Southern Cross dividends resume, they will be at a “more modest level than they have been in the past”. (Hodson also reassured that Spark’s own dividend to its shareholders would be held at 25 cents per share in 2020.)
Yesterday, Spark said Telstra’s 25 per cent stake in Southern Cross is now a donedeal beyond a few “procedural details” that are expected to be finalised this week.
Spark and Telstra both declined to comment on what the Aussie telco paid for its stake.