On Monday, Vocus Communications of Australia announced that it will merge with its rival, M2 Group. The deal is an all-stock deal that is valued at around $1.30 billion. The merge is part of an effort to provide a range of integrated Internet services to corporations and households.
Those who own shares in M2 will receive 1.625 Vocus shares for each share that they own. When the deal between Vocus and M2 is complete, the new company will become the fourth-largest integrated telecommunications company in Australia, and it’ll be the third-largest in New Zealand.
David Spence, the chairman of Vocus, said that the the new company will combine the telecommunications infrastructure of Vocus and M2’s expertise in the consumer and small, medium enterprise segments. Spence added that the merger of the two companies provides a great opportunity for all shareholders. According to The New York Times, Spence will become the chairman of the group, when the deal between Vocus and M2 has been completed.
When Vocus and M2 merges, it will have a market value of around three billion Australian dollars. That number may sound impressive, but it is nothing compared to the market value of Telstra, which is the dominating telecommunications company in Australia. Telstra has a market value of almost 70 billion Australian dollars.
According to the Wall Street Journal, Vocus and M2 have said they will be able to take advantage of Australia’s National Broadband Network. The NBN is a high-speed network being built across Australia. It is an open-access data network that is being built on the back of a fixed-line infrastructure, which Telstra sold to the Australian government three years ago.
Craig Farrow, the chairman of M2, says he is pleased the two companies are going to be merging. He says that M2 and Vocus are a good fit for one another. Upon Vocus and M2 merging, Farrow will become the company’s deputy chairman. Mr. Spence will lead a board that will have four directors from both Vocus and M2.
Geoff Horth, M2’s Chief Executive, will be the CEO of the merged company. James Spenceley, the founder of Vocus, will take on a role that will have him focusing on strategy in regard to telecommunications and infrastructure.
The Vocus and M2 deal has yet to be approved by M2 shareholders, as ZDNet points out. However, a vote will take place in 2016, and if shareholders approve of the merger, then the Australian Competition and Consumer Commission will have to give its approval. So far, it does appear the deal will be approved by shareholders. As for the boards of each company, they have already approved of the deal, unanimously.
When the companies merge, they both could save a substantial amount of money. The companies are forecasting up to A$40 million per year in savings.
In July, Vocus was able to close a deal to acquire Amcom Telecommunications Ltd., also an all-share deal. The company managed to beat out iiNet, as iiNet was interested in purchasing Amcom. According to reports, iiNet was already building up a stake in Amcom.
Vocus Tweeted about its acquisition of Amcom, saying that it was ready to shake up the teleco market.
— Vocus Communications (@VocusComm) July 9, 2015
Also, around the same time, M2 was looking to buy iiNet; but, iiNet ended up being acquired by TPG Telecom. The deal was worth more than A$1.5 billion, and it created the second largest telecom company in Australia.
M2 did complete an acquisition of 2Talk and CallPlus. After welcoming the brands to the M2 Group, the company made the following Tweet.
— M2 Group (@M2GroupLtd) June 30, 2015
Initially, the ACCC was concerned that TPG’s acquisition of iiNet would lessen competition in the retail, fixed broadband market. However, the ACCC did say that competition would not limit competition because of the ongoing high level of competition within the fixed-line market.
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