Australian ISP Vocus Communications (ASX:VOC) has agreed to buy its larger rival M2 Group (ASX:MTU) through an all-share merger worth about US$1.3bn.
Australian ISP Vocus Communications (ASX:VOC) has agreed to buy its larger rival M2 Group (ASX:MTU) through an all-share merger worth about US$1.3bn.
It is the latest deal in a wave of consolidation sweeping across the country as telcos jostle for position ahead of the National Broadband Network (NBN), a public-private partnership rolling out a range of communications technologies to reach all its premises.
The companies said M2’s shareholders, who would receive 1.625 Vocus shares for each M2 share, will be able to vote on the scheme of arrangement in early 2016. The deal represents a 25% premium to M2’s latest closing price and will create a group with a market cap of more than A$3bn (US$2.1bn).
The merger has been approved by both boards and they expect to generate A$1.8bn (US$1.3bn) in combined revenues and A$370m (US$260m) in EBITDA in FY2016. They anticipate fully realising about A$40m (US$28.1m) in cost synergies every year by the end of 2018.
M2 CEO Geoff Horth will keep his role for the enlarged company and Vaughan Bowen, the ISP’s executive director and founder, will also join the board and retain his focus on strategic acquisition opportunities.
Vocus CEO James Spenceley will continue on the combined board as executive director with a focus on telco infrastructure strategy.
Spenceley said: “The businesses combine Vocus’ telecommunications infrastructure and corporate customer base with M2’s demonstrated expertise in the consumer and SME segments. The merger creates the fourth largest vertically integrated telecommunications company in Australia and the third largest in New Zealand.”
The merged board will have a total of eight members, including Vocus chairman David Spence as chairman of the merged entity and Craig Farrow, M2’s chairman, serving as his deputy. Tony Grist, who was formerly with smaller ISP Amcom that Vocus bought earlier this year, will continue as a non-executive director.
Credit Suisse is financially advising Vocus on the deal, while Australia-based Minter Ellison is providing legal advice.
M2 is being financially advised by Goldman Sachs. Allens, which has an Asia-focused joint venture with Linklaters, is its legal adviser.
Hunter becomes prey
M2 tried to buy local rival iiNet in April with a A$1.6bn (US$1.1bn) bid that would have seen it become the country’s second-biggest fixed-line player. Its competing proposal forced Australian ISP TPG Telecom to up its original offer by A$500m (US$351.2m) to seal the deal.
M2’s NZ$250m (US$160m) offer for New Zealand’s third-largest ISP Call Plus earlier that month was successful, however, also signalling that it was back on the acquisition trail after buying telecoms services firms Dodo & Efftel, Primus Telecom, and Commander between 2009 and 2013.
Vocus has also been looking to acquisitions to gain scale for a while. Its last notable deal was agreed in December, when it agreed to merge with Amcom.
Its M2 merger comes not long after Rod Sims, chairman of local telecoms regulator ACCC, sounded warnings about a “relatively concentrated broadband market” after clearing the TPG/iiNet deal.
He said any future merger between two of the remaining four large suppliers of fixed broadband – incumbent telco Telstra, TPG/iiNet, Singapore-owned Optus and M2 – would likely raise serious competition concerns.
