Superloop rubs salt in Aussie Broadband's wounds with share disposal order

Aussie Broadband's (ASX: ABB) parried attempt to acquire rival internet service provider (ISP) and telco Superloop (ASX: SLC) has gone from bad to worse, with the target now ordering the suitor to dispose of 37.6 million due to a breach of Singaporean regulations.

Having described the $467 million Aussie Broadband offer as "opportunistic", the Superloop board revealed a strong hand at the bargaining table last week by revealing a breakthrough deal with Origin Energy (ASX ORG) that robbed Aussie Broadband of a white labelling arrangement.

Superloop expects to migrate 130,000 Origin Energy customers across to its platform as a result, adding $19 million in annualised earnings once the subscriber base is fully transitioned. In contrast, Aussie Broadband will say goodbye to an Origin contract that will generate $14 million in earnings this financial year.

Now Superloop is rubbing salt in Aussie Broadband's wounds by ordering the company to dispose of almost $50 million worth of shares, which would nonetheless represent a profit but would take the suitor's holding down from 19.9 per cent to less than 12 per cent.

It was revealed this morning that Aussie Broadband acquired the 19.9 per cent voting power in Superloop without the prior approval of the Info-communications Media Development Authority (IMDA) in Singapore, as required by Superloop's constitution.

Aussie Broadband has admitted to the breach and claims it was inadvertent, although Superloop has questioned this assertion given it would have needed to follow the same statutory regime in its recently completed acquisition of Symbio.

"As soon as ABB became aware of the requirement, ABB notified IMDA of its acquisition," Aussie Broadband states in an announcement to the ASX.

"The relevant Singaporean legislation contains a framework for the IMDA to assess acquisitions made without prior IMDA approval. ABB is providing the required information for the IMDA to make its assessment pursuant to that framework.

"The Superloop constitution also provides for certain actions which may be undertaken by the Superloop board of directors in circumstances where a relevant share acquisition is made without prior IMDA approval. These actions include seeking a suspension of voting rights attached to the shares, a transfer or disposal of the shares and a restriction of income attached to the shares."

Aussie Broadband clarified it had also provided Superloop with an enforceable undertaking not to exercise any voting rights attached to the excess shares until the IMDA has approved or made a determination.

"ABB is currently considering its options in respect of the notice," the company states.

Superloop notes Aussie Broadband has also sought to characterise its conduct as merely "potential, technical non-compliance".

"Superloop takes its legal obligations seriously. Any risk of loss of a statutory licence in Singapore is a matter of concern to Superloop and its board," Superloop says in an ASX statement.

"Accordingly, the Superloop board has determined that the appropriate response is to give a direction to Aussie Broadband under Rule 12A.5 of its constitution to reduce its shareholding to a level that is less than 12 per cent within 10 business days.

"Superloop understands that another effect of Aussie Broadband's failure to obtain IMDA approval in advance of the acquisition is that it now cannot acquire further voting power in Superloop without the approval of the IMDA under the Code, which Superloop understands can only be granted if the IMDA is satisfied that Aussie Broadband 'was not aware' of the contravention."

SLC shares are down 4.38 per cent in early trading at $1.20, which is down close to 15 per cent on 4.5-year highs achieved last week, while ABB shares are down 3.66 per cent today at $3.42, representing a 21 per cent crash since it was announced that it had lost the Origin contract.