Vodafone's purchase of TelstraClear is close to a done deal, sources say. A price of $450 million to $500m is being talked about in the market.

Negotiations between the companies were confirmed by Telstra, TelstraClear's Australian owner, on June 5, although it said then no certainty existed that an agreement would be reached.

Sources have indicated to BusinessDay that a deal is highly likely, and could be announced as early as next month. TelstraClear employs about 1300 staff, and a further 700 contractors, many of whom would be affected by an acquisition.

Details of the price remain highly speculative, but $450-$500m would be more than some analyst valuations. One Australian media report quoted an unnamed analyst estimating TelstraClear could be worth about A$340m ($435m), using a multiple of four times earnings, before interest, tax, depreciation and amortisation.

Another Australian analyst has indicated a valuation of A$285m (NZ$365m) based on an ebitda multiple of 3.5 times.

IDC Research analyst Glen Saunders said $400m to $500m would probably be at the "upper end" of his expectations as a price for TelstraClear, given Telstra might only sell TelstraClear's consumer business – thereby mimicking Telecom's partial sale of Australian subsidiary AAPT in 2010.

Saunders said he agreed with Gartner vice-president Geoff Johnson and Australian independent analyst Paul Budde that the deal might be designed to clear the way for Telstra to buy Telecom, but he thought any bid could take time to unfold. "It is always a possibly. We could be talking three to five years for that – as a long-term plan."

Financial analysts Geoff Zame of Deutsche Bank, and Guy Hallwright, from Forsyth Barr, have all-but dismissed the possibility of Telstra buying Telecom.

One analyst, who asked not to be named, said Vodafone would probably be doing Telstra a favour by taking TelstraClear off its hands "given how poorly it's been performing".

The rumoured sale price did not necessarily factor in the strategic value to Vodafone of TelstraClear assets, such as its extensive fibre networks, but it also represented a big loss to Telstra on its New Zealand foray.

TelstraClear accounts value Telstra's investment at $1.46 billion with little to show for that – TelstraClear's retained losses to June last year totalled $540.7m.

WATCHDOG ON ALERT

Vodafone's expected deal to buy TelstraClear is likely to come to the attention of the monopoly watchdog, the Commerce Commission.

In a paper published yesterday, Bronwyn Howell, of the Institute for the Study of Competition & Regulation, said the deal would merge the number two and three internet service providers to create a firm with a 30 per cent market share, behind leader Telecom on 50 per cent.

The commission's guidelines say a merger is unlikely to lessen competition if it creates a firm with less than 20 per cent share in a market where the biggest three have more than 70 per cent.

"Hence the merger is likely to come to the attention of the commission," she said.

- © Fairfax NZ News