Shares in TPG Telecom surged another 18% plus yesterday after the company revealed details of its planned merger with Vodafone Australia via a scheme of arrangement.
TPG shares closed at $9.31, up more than 18% on the day and over 60% in the past month, though yesterday’s close is well short of the $12.84 hit in July 2016 before a profit downgrade hit confidence in the stock because of the imminent impact of the NBN’s rollout.
This deal goes some way to mitigating those concerns. Shares in Hutchison Telecommunications Australia (a shareholder in Vodafone Australia), leapt to 18 cents, up 445 on the day and 240% in the month so far.
The price moves were a big thumbs up from investors to the deal. Shares in Telstra were also up just over 2.8% yesterday to $3.23, taking their gain for the month so far to more than 14%.
Vodafone Australia and TPG Telecom yesterday revealed that they have agreed to merge into a single $15 billion telecommunications firm in an effort to more effectively challenge Telstra and Optus and other emerging competitors.
The two companies confirmed to the ASX they plan an all-scrip, merger-of-equals, following discussions revealed by TPG last week.
Under the deal, TPG shareholders will own 49.9% of the group, with Vodafone Australia shareholders will have 50.1%.
The merged company – to be called TPG Telecom Limited – will have a combined value of about $15 billion(including debt) and annual revenue of more than 6 billion.
Vodafone will have net debt of about $1.9 billion after a restructure of its debt facilities after the merger is approved.
TPG will contribute $1.67 billion in debt and $352 million in spectrum instalments. If the net debt balance is below this amount, there may be a special fully franked dividend for current shareholders.
Both companies confirmed they will bid for 5G spectrum when it is auctioned by the Federal Government later this year.
TPG is Australia’s second largest internet service provider (ISP) with more than 1.9 million subscribers, while Vodafone is the third largest mobile operator with 6 million subscribers.
TPG is also in the process of building a mobile phone network, but with the Vodafone network poised to join TPG’s business, analysts are asking does the merged company need this new network?
Vodafone Australia CEO Inaki Berroeta said the merged group will become a stronger challenger to bigger rivals Telstra and Optus.
“The combination of the two companies will create an organisation with the necessary scale, breadth and financial strength for the future,” Mr Berroeta said in a statement yesterday.
“The equal terms of the combination preserves the competitive strengths of the two businesses, meaning a sustainable long-term fixed/mobile competitor to Telstra and Optus.”
TPG chairman and chief executive David Teoh (and major shareholder in TPG), said in a statement the tie-up represented an “exciting step-change” in the company’s evolution.
“Together we will become a more effective industry challenger that strives to create competitively priced consumer products with the high levels of customer service that differentiates us in the market,” Mr Teoh said.
TPG directors Robert Millner and Shane Teoh, two nominees from Vodafone, two from Hutchison Australia and two independent directors will make up the new board of the merged company.
TPG directors have recommended shareholders vote in favour of the deal, if there is no superior proposal.
