Sydney — Australia’s TPG Telecom has agreed to a merger with Vodafone’s Australian business, easing competition in the cut-throat sector and buying scale to take on bigger rivals Telstra and Optus.
It combines Australia’s third-and fourth-largest telecom firms into a larger third player holding TPG’s fibre cable network and Vodafone’s mobile system, sending shares on both sides of the deal soaring.
The tie-up, to be called TPG, comes as Australia’s telecommunications sector faces upheaval from the rollout of a government-owned broadband wholesaler, which has dented internet profitability and driven intense price competition in the mobile market.
"When you combine the fixed and mobile assets, the new TPG would be in a proper position to deal with Optus ... and a full-fledged telecom operation," said Bernstein analyst Samuel Chen.
This merger creates the size, scale and financial strength for us to compete with the incumbents
— TPG CEO David Teoh
It would represent a "last chance" for Vodafone, which has struggled with network reliability issues since entering Australia in 1993, to make a serious bid for market share, he said.
The complex transaction hands TPG shareholders 49.9% of a new entity, which the companies say will have an implied enterprise value of A$15bn. The rest is split evenly between Vodafone’s two Australian owners, Vodafone and Hutchison Telecommunications (Australia).
Shares in TPG jumped 15% to a near two-year high in early trade, while tightly held Hutchison shares soared 48% to their highest price in 11 years. Telstra stock rose 2.5% and the broader market rose 0.2%. The companies promised synergies without quantifying them and said they would prepare a joint bid to buy 5G spectrum at a government auction in November.
"This merger creates the size, scale and financial strength for us to compete with the incumbents," TPG CEO David Teoh told investors on a conference call.
Vodafone Hutchison Australia CEO Inaki Berroeta said: "We do mobile, they do fixed. Ultimately this combination is around technology synergies."
Vodafone, Teoh and Hutchison would retain their holdings in the new company for at least two years, Vodafone said.
Berroeta would run the new company with Teoh as chairman, TPG Telecom and Vodafone Hutchison Australia said in a joint statement.
TPG’s board unanimously backed the merger, which requires shareholder and regulatory approval, and the companies said they hoped to complete it in 2019.
As part of the deal, TPG said it would also spin out its Singapore mobile business, separating it from the new merged company.
Reuters
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