Telecoms software and network provider MNF Group (ASX: MNF) is set to bolster its market presence after announcing a buyout of Inabox Group’s (ASX: IAB) telecommunications and enablement services business, including all of its operating subsidiaries; Telcoinabox, iVox, Neural Networks, Mobile Service Solutions and Symmetry Networks.
As a business, Inabox supplies wholesale telecommunications and enablement services, including billing and technical and customer support to retail service providers around Australia. In addition, Inabox empowers mass-market consumer brands to enter the telecommunications market by leveraging its network and systems capabilities.
Meanwhile, MNF is an integrated telecommunications software and network provider, specialising in internet communications.
It operates a “global smart network” carrying over 6 billion voice minutes per year, with points of presence already established in Los Angeles, New York, Hong Kong, Singapore, London, Frankfurt, Sydney and Auckland.
In Australia, MNF operates the largest, fully interconnected IP voice network in Australia and says it has operated profitably since 2009, paying dividends to its shareholders every six months since September 2010.
The company manages multiple retail brands including MyNetFone, Connexus, CallStream, PennyTel and The Buzz; conferencing brands Ozlink, Eureka, Express Virtual Meetings and wholesale brands TNZI, Symbio Networks and iBoss.
Hooking up in telecoms
Under the terms of their binding sale agreement, MNF will pay around $33.5 million in an all-cash deal for the entirety of Inabox’s telecoms business and all its brands, comprised of $28 million paid upon completion next month and a further $5.5 million paid in future instalments as part of the deal’s “earn out” conditions.
Despite the deal requiring ratification by Inabox’s shareholders at the company’s general meeting next month, its directors have unanimously recommended the proposed transaction to shareholders on the basis that it “unlocks significantly more value for shareholders than might otherwise be expected over the medium-term by continuing to operate the company in its current form,” according to Inabox.
Inabox’s directors determined MNF’s offer to be “superior” in comparison to all others the company had received, in part due to its all-cash nature that provides a relatively higher degree of “completion certainty”.
In terms of benefits for its shareholders, Inabox says the deal likely means it can pay a total cash distribution to shareholders that “is likely to be in excess of $0.80 per share”, assuming the entire $33 million is paid in accordance with the deal’s earn-out conditions.
If agreed and finalised, the return to shareholders would represent a premium of at least 70% on the 3-month VWAP of $0.47 prior to the announcement of possible material transactions on 6th June 2018. At the time of writing, Inabox shares were trading up 20 cents, around 40% higher at $0.70 per share.
According to Inabox, the buyout deal will allow the company to repay all its debts, extinguish all other transaction expenses, retain an amount budgeted to operate and cover the expenses of the listed entity while it pursues a “back-door listing” – otherwise known as a reverse-takeover (RTO).
The remainder of the cash will be distributed back to shareholders via a paid dividend that could exceed $0.80 per share.
At the current time, Inabox’s Board has estimated that if the transaction proceeds as expected, the net amount available for return to shareholders is likely to be $16-17 million before any earn-out figures are considered, with up to $3 million in further capital available assuming all its earn-out conditions are satisfied.
“We are delighted to present the sale agreement to the shareholders of Inabox. The transaction follows a strategic review by the Inabox board and senior management and over six months of confidential discussions with several interested parties. The transaction, if completed, offers our shareholders a cash return which represents a significant premium over the recent average market price of our shares,” said Damien Kay, CEO of Inabox.
He added that the “MNF Group is a natural buyer for our Indirect Business and I am confident that our staff, customers and suppliers will benefit from becoming part of a larger, highly successful company.”