The TPG Telecom Ltd (ASX: TPG) share price is in focus after the telco announced the sale of its fibre and EGW assets.
TPG is one of the largest telecommunications businesses in Australia, with brands like Vodafone Australia, iiNet and TPG.
TPG sells fibre
The ASX telecommunications business announced it has entered into an agreement to sell its fibre network infrastructure assets and enterprise, government and wholesale (EGW) fixed business, including Vision Network, to Vocus Group for an enterprise value of $5.25 billion, including a potential $250 million ‘contingent value payment’.
TPG said it will retain its mobile radio network infrastructure, consumer and EGW mobile business and its consumer and small office/home office fixed retail business, including the fixed wireless (broadband powered by 4G/5G).
The two businesses are aiming to complete this transaction in the second half of 2025, subject to the conditions being satisfied. Once completed. TPG expects this deal will deliver net cash proceeds to the company of between $4.65 billion to $4.75 billion.
TPG will enter into a transmission and wholesale fibre access agreement where TPG will pay $130 million per annum for an initial 15-year term, with two 10-year extensions at TPG’s election. This agreement has been designed to ensure “owner economics” of the fibre network, so pricing is not based on volume and increased only in relation to indexed and capped inflation and network expansion requiring the deployment of new physical infrastructure.
What will TPG do with the money?
The telco said it intends to use these proceeds to support future capital management and business investment initiatives. That sounds like the company is considering some sort of cash return to shareholders, which is normally in the form of dividends or share buybacks.
How will this affect the financials?
Using FY23 as the base, this transaction would decrease EBITDA by $429 million, decrease operating free cash flow by $334 million, decrease in depreciation and amortisation, and decrease EBIT by $198 million.
Final thoughts on the TPG share price
At the open price, TPG shares are flat over the past year, but it’s down 40% since July 2020. It’s a lot cheaper, but I’m not sure if its profit is going to be able to keep climbing from here, so I’m not sure if it’s a great investment beyond returning cash from this deal to investors.
There are plenty of other ASX dividend shares I’d rather buy.
