National broadband provider today confirmed – after a week filled with speculation that it would do so – that it would buy the retail customers of Telecom New Zealand subsidiary AAPT, in a move that also resolves long-standing questions about AAPT’s shareholding in iiNet.

The deal will bring about 113,000 broadband subscribers and over 251,000 other active telecommunications services to iiNet – with the ISP to have more than 652,000 broadband subscribers in total, as well as total active services of more than 1.32 million. IiNet expects that it will migrate about 25,000 subscribers onto its own network.

In a statement, iiNet chief executive Michael Malone noted that it had only been a short time since his company’s acquisition of another major Australian ISP – Netspace.

However, he said said the AAPT deal represented a unique opportunity to acquire a large subscriber base – as well as to strengthen iiNet’s five-year-old agreement with AAPT’s wholesale division PowerTel – which over the past half-decade has seen PowerTel wholesale iiNet’s broadband network to others.

As part of the deal, iiNet will ink a new wholesale arrangement with AAPT to use the company’s network. The AAPT brand will not be acquired as part of the deal – that will remain with the Telecom New Zealand subsidiary, which will now focus on the business and wholesale markets, according to a statement issued today by Telecom.

As part of the deal, Telecom will sell its long-held 18.2 percent stake in iiNet – worth about $70 million – to “institutional and sophisticated investors” – a move which iiNet expects will significantly increase the amount of iiNet shares on the market.

“The relationship between iiNet and Telecom New Zealand has been very positive and we would like to thank Telecom New Zealand for their support during the term of their investment,” Malone said.

“Together these transactions rationalise non-core assets, strengthen Telecom’s financial position, and help reposition AAPT’s operations into a focused, network-centric wholesale and corporate business that is well-positioned for future growth,” said Telecom NZ chief executive officer Paul Reynolds.

The deal will be subject to the approval of iiNet’s shareholders — who will get their chance to approve or deny the deal at an extraordinary general meeting expected to be held in September – as well as regulatory approval. The acquisition will be funded from iiNet’s cash on hand as well as debt facilities.

In general, iiNet expects the deal to bring in “post-synergies” earnings before interest, depreciation, taxation and amortisation of $20 million in the first full year after the acquisition – which comes in addition to its $10m EBITDA expected contribution from Netspace in the 2011 financial year.

Image credit: iiNet

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