The deal, if approved, will create Australia’s fourth largest vertically-integrated communications company with a market capitalisation of around $3 billion.
Craig Young, CEO of Tuanz (Telecommunications users association of New Zealand), tweeted that he estimates the merged company will have a 17 percent share of the New Zealand broadband market. That appears unlikely in my view – with the Australian Competition and Consumer Commission (ACCC) already saying it would take a dim view of further consolidation in the retail broadband sector.
Ovum telecoms research director, David Kennedy, said Vocus operates primarily in the enterprise and wholesale market, which is where the impact will be most felt.
Assuming shareholders agree and the plan gets nodded through by regulatory authorities – both seem likely – they will merge early next year to become Australia’s fourth largest telco.
“The businesses combine Vocus’ telecommunications infrastructure and corporate customer base with M2’s demonstrated expertise in the consumer and SME segments”. (See: Australian regulator clears TPG’s $1.2-bn iiNet acquisition).
The deal is subject to the usual conditions for a scrip merger of this nature, including the approval of M2 shareholders, courts and the regulator.
Vocus and M2 have agreed to merge, creating a combined local telco with $1.8 billion in revenue.
“The ACCC has warned that it will carefully scrutinise future mergers between major players”. The companies expect annual cost savings through the combination of their two networks, facilities and offices, with a one-time cost of AUD 20 million.
Its shareholders will own 56 per cent of the merged group, which will be run by M2 chief executive Geoff Horth. Among other services the two told the ASX the combined portfolio will include dark fibre, data centres, global and domestic bandwidth, retail and business internet services.
Vocus’ announcement of a proposed acquisition of rival telco, Amcom Telecommunications Limited (ASX: AMM), in late 2014 saw shares in both companies jump significantly higher. In New Zealand the company offers the leading brands of CallPlus, Slingshot, Orcon, 2Talk etc.
Based on Vocus’ Friday closing price of $6.49, the offer implies a value of $10.55 per M2 share, or a premium of around 25 per cent.