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Trilogy International Partners Inc. (TRL.TO) (TLLYF) rose 29% in Canada on Friday after it announced the sale of its New Zealand subsidiary. It traded over 1.2 million shares, which is unusually high volume for it. From the press release:
"BELLEVUE, WA / ACCESSWIRE / December 31, 2021 / Trilogy International Partners Inc. ("Trilogy" or "TIP Inc.") (TSX:TRL), an international wireless and fixed broadband telecommunications operator, and its minority partner Tesbrit BV, today announced that they have entered into a definitive agreement to sell 100% of their equity in Two Degrees Group Limited ("2degrees") to Voyage Digital (NZ) Limited ("Voyage"), a joint venture between Macquarie Asset Management and Aware Super as owners of Vocus Group Limited. Trilogy owns 73.17% of the equity in 2degrees. It first announced discussions with Macquarie Asset Management and Aware Super and a potential merger of 2degrees with Orcon Group in October 2021.
The implied enterprise value of 2degrees equates to NZ$1.70 Bn (including lease liabilities). This represents an EV/EBITDA multiple of 8.9x based on last twelve months of New Zealand Segment Adjusted EBITDA at September 30, 2021 on a US-GAAP basis and using an implied enterprise value of NZ$1.58 Bn excluding lease liabilities. On a cash free debt free basis, the purchase price for 100% of 2degrees shares (including employee options that will convert into shares in connection with the sale) represents an equity value of NZ$1.315 Bn, subject to potential adjustments at closing for specific costs or payments by 2degrees between signing and closing.
"Over the past several months we have been focused on strategic initiatives to maximize value for our stakeholders. This transaction crystalizes value for Trilogy shareholders at a valuation which reflects the remarkable accomplishments of our team in New Zealand and runway for future growth," said Brad Horwitz, President and CEO of Trilogy.
The transaction is subject to required regulatory approvals and the approval of Trilogy's shareholders.
Trilogy anticipates that closing will take place in the first half of 2022."
This deal is valued at $1.7 billion NZD, inclusive of debt and $1.3 billion NZD excluding the cash and debt portion. As Trilogy owns a majority stake and therefore accounts for the assets and liabilities of 2degrees on its balance sheet, it makes the most sense to use the $1.7 billion figure as those assets and liabilities will be expunged with the sale.
The $1.7 billion deal in NZD translates to $1.16 billion USD. Trilogy owns 73.17% of the equity in 2degrees so the net impact to its bottom line is $852 million USD. Trilogy has $654 million in debt that must be paid back once it gets the cash from this deal. It also has other liabilities including the operating lease liabilities along with working capital, but the majority of these will get expunged in the deal.
Subtracting the $654 million in debt from $852 million is $198 million USD. This translates to $250 million in CAD. This will be the approximate net cash value of the deal to TRL. There are 86 million shares outstanding so this figure leads to $2.90 in cash value per share. TRL also has a Bolivian subsidiary that will remain once the 2degrees deal closes and other assets related to this subsidiary.
As the stock price closed at $2.38, we see an upside of 26% to $3.00 per share that should be achieved over the next few days, pricing the Bolivian subsidiary at essentially for free.
Disclosure: We are long TRL.TO
