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The decision by Vodafone to buy TelstraClear for $840million would have a "relatively limited" impact on Telecom, Forsyth Barr broker Tom Bliss said yesterday.
The sale was contingent on New Zealand regulatory approval, including from the New Zealand Commerce Commission, Overseas Investment Office and Ministry of Business, Innovation and Employment, which was expected to take several months.
"The acquisition will have no real impact on the mobile market and while Vodafone's improved ability to offer an integrated solution could make it a stronger competitor in the business market, the merger also removes one potential bidder for larger contracts.
"This means Commerce Commission approval is not a certainty, in our view," he said.
The purchase price was higher than Mr Bliss expected, although it included part of TelstraClear's mobile spectrum.
TelstraClear would continue to operate as a stand-alone entity for 12 months to 18 months as Vodafone assessed how best to integrate the businesses.
TelstraClear's corporate business was included in the sale but there was a five-year agreement for Vodafone to service Australia-based parent Telstra's "important" transtasman customers, he said.
Although cost and capital expenditure reduction plans, and the current on-market buy-back, had boosted Telecom's share price, the Forsyth Barr model suggested the market was now factoring in a strong and sustained rise in returns on capital.
"We believe this is likely to prove over-optimistic given the likelihood of increasing competition in the retail business."
Forsyth Barr retained its hold recommendation on Telecom shares.
However, AMP Capital Investors (New Zealand) has sold down its stake in Telecom to below 5%, taking advantage of a stock price trading around its highest levels in four years.
The Wellington-based fund manager, one of New Zealand's largest, sold 18.9 million shares of Telecom between April 1 and July 7, reducing its stake to about 4.9% from 5.7%.
Shares of Telecom, which spun off its Chorus network company in November, fell 0.9% to $2.56 and have climbed 22% this year.
They traded as high as $2.75 on May 10, the highest since August 2008.
The stock has a dividend yield of 11.6%.