TeamTalk has issued its target company statement in response to Spark’s $22.7m, 80 cents per share takeover offers saying that an independent review values its shares at between $1.52 and $2.11 and that its directors unanimously reject the offer.
Independent adviser, Grant Samuel & Associates, was engaged as required by the takeovers code to report on the merits of Spark’s offer, including an assessment of the value of TeamTalk. It puts the value of the company at between
Grant Samuel has valued the company at between $43.0m and $59.8m by valuing TeamTalk Mobile Radio at between $30.8m and $38.5m, the CityLink fibre business at between $44.6m and $62.7m and the Farmside satellite communications services at between $9.6m and $12.0m. It says there are no compelling reasons for TeamTalk shareholders to accept the offer.
TeamTalk chairman, Roger Sowry, said the Grant Samuel report validated the company’s earlier assessment that Spark’s offer was woefully inadequate. “The Spark offer fails to reflect the value of TeamTalk’s new strategy, strong leadership and forecast growth as demonstrated in our recent results announcement,” Sowry said. “Nor does it attribute any value to the significant synergies and strategic benefits that Spark would capture in the unlikely event their offer were to succeed.”
TeamTalk’s CEO, Andrew Miller, described Spark’s offer as “predatory,” saying it had been made before the company and its shareholders could benefit from the turnaround strategy implemented late last year. “It is an attempt to exploit the challenges the company faced during 2016,” he said. “Those challenges have now largely been addressed and TeamTalk is profitable again, as the half-yearly results to 31 December 2016 have demonstrated.”
He claimed that shareholders would be much better served by staying the course and “benefitting from the uplift in TeamTalk’s performance than selling their shares for 90 percent to 164 percent less than the assessed fair value to Spark.”
TeamTalk’s rejection of its offer produced a swift response from Spark with CFO David Chalmers saying the Grant Samuel valuation lacked real world credibility and was “patently absurd” because, at its maximum, it represented a 369 percent premium on the TeamTalk share price prior to the Spark offer.
“This report asks shareholders to have enormous faith that the TeamTalk board, many of whom are the same team which has led TeamTalk into what Grant Samuel refers to as the ‘ill-fated’ acquisition of Farmside, and more recent ‘disarray’, will deliver the huge improvement relied on in the valuation,” Chalmers said.
TeamTalk has provided after tax profit guidance to 30 June 2018 of $4.1m to $5.6m. It says the Spark Offer of $0.80, valuing the company at $22.7mn represents a price-earnings ratio of between 4.1 and 5.5 times and is very low when compared to Spark’s own PE multiple of around 16 times to 30 June 2018.
TeamTalk says: “Spark has strategic challenges and its earnings are forecast to be flat between 2017 and 20183. Spark is attempting to capture the benefit of TeamTalk’s strong forecast growth (to the detriment of TeamTalk’s shareholders) by buying TeamTalk at a low price, capturing TeamTalk’s earnings, extracting revenue and synergy cost benefits, and then having those earnings rated on Spark’s much higher valuation multiple.”