M2, Vocus merge to form down under’s newest billion-dollar telco

Telcos Vocus and M2 have announced details of a proposed merger that will create Australia’s fourth largest vertically integrated communications company.

The all-share transaction would see M2 shareholders receive 1.625 Vocus shares for each M2 share, resulting in a combined company worth more than $3 billion in market capitalisation.

The deal continues an aggressive expansion for Vocus which only completed its $780 million acquisition of Perth based telco and IT services company Amcom in July.

David Spence, Vocus chairman, says the merger will combine Vocus’ telecommunications infrastructure and corporate customer base with M2’s expertise in the consumer and SME segments.

However, Vocus faced questions from investors this morning over the value it would provide the company’s shareholders.

M2 has a strong consumer presence, but Vocus is primarily a wholesale and business services provider, which may go some way towards mitigating the threat to competition.

The merged portfolio would touch on a wide range of products, including “retail internet; retail electricity and gas; corporate internet and IP voice; wholesale internet and IP voice; data centre and cloud services; worldwide and domestic bandwidth; and dark fibre”.

The merged business will earn about half its revenue from consumers and half from business. If approved the scheme implementation date will also be early 2016.

Vocus shares slipped 0.15 per cent to $6.48.

M2, meanwhile, was left licking its wounds after missing out on its priority prize, iiNet, which was gobbled up by rival suitor TPG Telecom for $1.6 billion in cash and scrip. The stock closed at $9.55, up $1.13, or 13.4 per cent.

Vocus had the infrastructure to kick start a new phase of growth at M2, but in order to get the deal done, it had to cover the recent losses in M2’s market value. “TPG is the great example of that”, Spenceley said.

“A Scheme Booklet is expected to be dispatched to M2 shareholders in late 2015”, both parties said in a statement.

“The ACCC has noted the growing consolidation in what will now become a relatively concentrated broadband market”. Any future merger between two of the remaining four large suppliers of fixed broadband is likely to raise serious competition concerns, ” ACCC chairman Rod Sims had said.