Investors take the now usual positions in a surprise takeover/merger situation – they sell the bidder and buy the target in the faint hope of a higher bid. In the case of yesterday’s news that Vocus Communications (VOC) is bidding for M2 Group (MTU), hopes of a counter bid seem to be remote at best, and fairly silly.
Under the bid terms, M2 investors will receive 1.625 Vocus shares for each one they own. That values M2 stock at $10.55 a share, 25% higher than the closing price last Friday.
M2 shares closed up 13.4% at $9.55, after being bid as high as $10.47 by silly punters betting on a counter offer – it won’t come. Vocus shares sold off sharply, dropping more than 7% to $6.010 as it was taken out of the list of potential takeover targets.
Vocus, which is still bedding down its takeover of Amcomm, will create a $3 billion telecommunications company – a deal that was triggered by the successful $1.56 billion move by TPG Telecom to buy iiNet. M2 was a failed counter bidder for iiNet.
M2 is the Australia’s fourth-biggest provider of fixed-line broadband services for consumers with its Dodo and iPrimus brands. Vocus focuses on the corporate broadband market in Australasia.
VOC vs MTU 1Y – Consolidation continues apace in the telecoms sector
The merger will create the nation’s fourth-largest telecommunications company and the third-largest in New Zealand with $1.8 billion in annual revenues and a market capitalisation of over $3 billion.
And the deal will set the shape of the Australian telco sector for some time to come with mighty Telstra at the top, followed by Optus and TPG, with the new combined growth in 4th spot.
A Scheme of Arrangement Booklet is expected to be sent to M2 shareholders late this year and M2 shareholders will vote at a Scheme meeting expected to be held in early 2016.
“Subject to the conditions of the Scheme being satisfied, the Scheme Implementation Date will be early 2016,” the two companies said in yesterday’s release.
Vocus chief executive James Spenceley will become executive director alongside M2 founder Vaughan Bowen while M2 chief executive Geoff Horth will become CEO of the combined business.
The deal will get close examination by the ACCC, the competition regulator, ACCC chairman Rod Sims indicated after the competition watchdog approved the iiNet-TPG deal earlier this year that it might be harder for any future mergers to be approved because the deal effectively reduced the number of large telcos in Australia to just four: Telstra, Optus, iiNet-TPG and M2.
But in choosing the business-focused Vocus, M2 has managed to avoid the ACCC’s attention.
The ACCC says it will look at the deal with an open mind, but it looks as though the deal will go through because it doesn’t involve a reduction in competition at the Internet Service provider level for the retail market.
