Telecom investors appeared spooked by announcements coming out yesterday regarding the change of leadership, separation details, the shares going ex-dividend and a credit rating update.
• Telecom appoints three women to board
The shares closed on Tuesday at $2.73. They opened yesterday at $2.58, reached a low of $2.45 before trading at $2.54 for most of the day. Shares closed at $2.54.
As widely expected, chief executive Paul Reynolds announced he would leave the company once the split into two companies had taken place.
Dr Reynolds told the Otago Daily Times in May he was keen to stay on and it appeared he would most likely continue to lead the new retail and sales-oriented Telecom.
However, the market believed Dr Reynolds had achieved the job he was brought in - in 2007 - to achieve, which was the structural changes to the company which was the largest listed on the NZX at that stage.
Chairman Wayne Boyd had earlier indicated he was leaving the company at the end of the year.
The New Telecom - as the company is now being called in documents - will focus on retail and sales, while New Chorus will be a fixed line telecommunications access network with a dominant position in the market.
Rating agency Standard and Poor's has assigned a BBB preliminary credit rating to Chorus but Telecom remained on credit watch with negative implications.
"We expect to lower the long-term ratings on Telecom by one notch to A-minus and the short-term rating to A-minus2 if the demerger proceeds as planned," S&P said in a statement.
Craigs Investment Partners broker Chris Timms said there was a lot of news to be absorbed by the market and investors.
"Is it good, bad or indifferent? We are working our way through it and what it means, to pass on to clients.
"For investors, the simplest option is to sell and let someone else work it all out."
All of the announcements had to be made by Telecom. The challenge was to work through the documents and their implications.
The separation was subject to shareholder approval and finance but that should not be much of a hurdle. However, the process had to be gone through, he said.
Telecom said a scheme booklet was expected to be sent to shareholders in mid-September.
A shareholder meeting to consider and vote on the demerger scheme would be then scheduled.
If the demerger proceeded as expected by the end of the year, Telecom would apportion its existing debt.
New Chorus was expected to have about $1.7 billion of net interest-bearing debt and New Telecom was expected to have $750 million to $950 million.
Once the split is complete, New Telecom would be the bigger of the two companies, with adjusted pro-forma earnings before interest, tax, depreciation and amortisation of $1.125 billion on $5.1 billion of sales in the 12 months ended June 30, while New Chorus made $676 million on $1.1 billion of revenue.
New Telecom expected to stay listed in the NZX 50 Index, S&P/ASX 200 Index and the MSCI World (Standard) Index. New Chorus would list in New Zealand and Australia.
Mr Boyd said in a statement that the board of New Telecom expected to begin a search for Dr Reynold's replacement next year. The replacement would lead the company during the 2012-13 financial year and beyond.
"I am particularly delighted Paul has agreed to stay on and provide continuity of leadership while the New Telecom business is established under a new chairman and, ultimately, a new chief executive.
"Until then, Paul is fully committed and mandated to lead Telecom towards the completion of the demerger and New Telecom in its establishment as a separate business, building on the momentum we already have in our key markets," he said.
