The Telstra Corporation Ltd (ASX: TLS) share price is in focus after it was announced that it’s buying retail stores for $110 million.
Currently many of those stores are actually operated by Vita Group Limited (ASX: VTG). But Telstra wants to operate those stores itself now.
What is the Telstra and Vita deal?
Vita announced it has entered into a share sale agreement to sell its retail business to Telstra for $110 million, subject to a net working capital and net-debt adjustment mechanism.
On 11 February 2021, Telstra announced to the ASX its intention to transition the Telstra branded retail store network, including Vita’s portfolio of stores, to a corporate ownership model.
As part of the deal, Telstra will take over the employment relationship with all store members and ‘field leaders’, and the majority of supporting teams and team members.
After the completion of the deal, the Vita board expects to distribute a majority part of the proceeds, less costs, to shareholders through a fully franked special dividend of approximately $65 million to $75 million (payable in two payments), representing $0.39 to $0.45 per share. This would come with franking credits of between $0.17 to $0.19 per share.
With the rest of the money, around $35 million, Vita plans to fund the further growth of the Artisan Aesthetic Clinics business.
The board believes this deal provides benefits to shareholders through realising value from the business it’s selling now, rather than trading through to the end of the Telstra Dealer Agreement in an uncertain economic environment and changing IT landscape.
Thoughts on this deal and the Telstra share price
The Vita share price dropped 5% in response, but the leadership clearly thought this was the best thing to do under the circumstances. Special dividends are good. The artisan business is growing quickly – FY21 revenue increased 41% to $28.4 million whilst artisan EBIT (EBIT explained) jumped 63% to a loss of just $2.6 million.
For Telstra, the move makes sense. It wants to have control over a key customer contact point. As a blue chip, Telstra seems to be turning things around, which is a good thing.
