Uniti buys Telstra fibre assets for $140m

Uniti Group will own the country’s second largest internet fibre network following a $140m deal with Telstra – the latest in a string of acquisitions pushing its market value closer to $1bn.

Uniti Group chief executive Michael Simmons.

Internet services provider Uniti Group has gained a significant share of the national broadband infrastructure market through its latest acquisition.

Uniti Group will pay $140m for Telstra’s fibre assets that make up the Telstra Velocity & South Brisbane Exchange network.

Velocity is Telstra’s optical fibre network that uses fibre to the premise (FTTP) technology to deliver high-speed broadband, phone and pay phone, subscription TV and free-to-air services across 128 residential housing estates in mainland Australian states and the South Brisbane Exchange region

About 68,000 premises have access to the Velocity FTTP network in these estates and regions.

Uniti is currently also bedding down two November deals – a $700m buyout of OptiComm and $9.25m Harbour purchase.

The deal with Telstra gives Uniti significant control of fibre optic network infrastructure.

SA-based Uniti has gone from a loss-making start-up to juggernaut since its eventful ASX listing week in February 2019, which also included the sacking of founders Che Metcalfe and Sasha Baranikov.

The transaction with Telstra is a complex set of arrangements that will see Uniti, which has a market capitalisation of $931m, take on a fresh capital raise and debt.

The deal will push Uniti’s market value closer to the $1bn mark.

Uniti will pay $85m on transaction completion, $20m payable in three equal instalments over 3 years and $35m payable upon completion of migration of the assets, subject to an adjustment based on number of active services.

Uniti will access $50m from bankers and has secured an underwritten commitment for $50m for 33.3m new shares at $1.50 each from institutional investor Merrill Lynch Equities.

Other shareholders can participate in a separate $10m share purchase plan.

Following completion, Telstra will become a retail service provider for the group and pay Uniti a license fee of $21.6m annually for the continued use of the Velocity assets as they work on transition and transfer of customer services along with a network refresh to improve speeds.

The transition planning and network and IT integration activities are expected to start from March 2021, with customer transition starting in July 2022 and likely to be completed in 12-15 months.

Uniti has also committed to a $70m spend for a 10-year term with Telstra Wholesale for essential backhaul, duct and exchange access to support delivery of services to customers.

Uniti said the deal will be 13 per cent earnings per share accretive from next year and will increase FY21 pro forma earnings before interest, taxes, depreciation and amortisation (EBITDA) by more than 20 per cent to $116m.

Uniti chief executive Michael Simmons said the Velocity acquisition was “another remarkable milestone for our young company”.

“To have secured such a large FTTP network aligned to our core strategy which can be integrated quickly to grow our “core plus” infrastructure earnings is a wonderful way to end what has been a completely transformative year for Uniti Group.

“The agreement struck with Telstra for it to become an RSP of our W&I business is perhaps the most significant strategic aspect of this transaction, given the large universe of presently untapped greenfield property opportunities it will enable us to target …

“We are delighted to have been able to secure these prized FTTP assets, for the long term benefit of all Uniti shareholders.”