There's been some big moves in the telco industry on Thursday.
This will either be good news of bad news depending on whether you own Superloop Ltd (ASX: SLC) or Aussie Broadband Ltd (ASX: ABB) shares. That's because they are heading in very different directions.
In early trade, the Aussie Broadband share price is down 25% to $3.24. Whereas the Superloop share price is up 34% to a 52-week high of $1.41 this morning.
And the company to thank (or blame) for these big moves is Origin Energy Ltd (ASX: ORG).
Image source: Getty Images
What's going on with Aussie Broadband and Superloop shares?
As readers may be aware, Origin has been offering broadband services for a few years.
It has been doing this through a white label agreement with Aussie Broadband. However, Origin has terminated the white label wholesale agreement effective 12 April 2024.
Aussie Broadband estimates that the agreement will contribute $14 million to EBITDA in FY 2024 despite ending before the end of the financial year. So, this does create a bit of a dent in the company's earnings.
Management notes that the two parties had been in discussions about a new deal, but it would have generated less earnings in the future.
Superloop seals deal
Superloop shares are rallying today after it secured the wholesale agreement with Origin.
It is an exclusive six-year wholesale contract which will see the migration of Origin's broadband customer accounts, currently 130,000 and growing, onto Superloop's network. The transition of Origin's current subscriber base is expected to occur during FY 2025.
The contract is expected to add in excess of $19 million of annualised EBITDA once the current subscriber base is fully transitioned, with further upside based on Origin's rapidly growing broadband customer base.
Origin issued shares
As part of the deal, Superloop is issuing Origin a large number of shares in the company. It has issued 9,847,690 Superloop shares upfront on signing.
It will then issue another 9,847,690 shares on the completion of the migration of 130,000 customers, and up to another $30 million of Superloop shares subject to achieving further customer growth milestones. It has also granted 55,672,002 options upfront on signing.
Superloop CEO, Paul Tyler, said:
Securing the Origin contract is a key progress milestone in Superloop's three-year growth strategy. It delivers a step-change in our customer numbers and cements our market position as a leading wholesale broadband and backhaul provider. In order to create strong alignment and pursue growth in broadband customers, we are delighted to welcome Origin as a shareholder and to issue it an option to acquire further shares.
Finally, in other news, Superloop has upgraded its EBITDA guidance for FY 2024 to $51 million to $53 million (from $49 million to $53 million).
Shareholder value protected
While the news was disappointing to Aussie Broadband, it has told The Motley Fool Australia that its focus was on ensuring that it continues to deliver value to its shareholders. This is something that would not be possible on the terms that Origin was seeking.
Aussie Broadband's group managing director, Phillip Britt, commented:
We are disappointed we have not been able to reach an agreement with Origin to renew our white label wholesale agreement, however as a company we have always been disciplined in ensuring every contract delivers value to our shareholders while also ensuring we can maintain a high quality service offering for customers.
In the case of Origin it became clear that, given the contract parameters they set us, we would not be able to meet either of these objectives. Given the growth profile of ABB, and the retail and wholesale opportunities we are pursuing, we took the view that it was important that a disciplined approach to assessing contracts and how capital is deployed is critical.
