M2 and Vocus Communications on Monday announced their intention to merge to create a more competitive entity in the Australian telecom market.
The new entity will have a market capitalisation of more than A$3 billion (€1.9 billion) and will be the fourth largest telco in Australia and the third largest in New Zealand, the companies said.
The o perators plan to combine their assets in an all-stock deal that will see M2 shareholders receive 1.625 Vocus shares for each M2 share they hold. The merged entity will be run by current M2 chief executive Geoff Horth.
The deal still requires the go-ahead from M2 shareholders and various regulatory approvals.
"The merger of Vocus and M2 is a compelling opportunity for all shareholders," said Vocus chairman David Spence. "The businesses combine Vocus’ telecommunications infrastructure and corporate customer base with M2’s demonstrated expertise in the consumer and SME segments."
The firms describe the merged entity as "a full-service vertically integrated, infrastructure-backed trans-Tasman telco." It will have a combined revenue of A$1.8 billion and EBITDA of A$370 million in financial year 2016, and the pair expect to generate cost synergies of A$40 million per year by the end of FY 2018.
"M2 and Vocus are an excellent fit, being highly complementary and culturally aligned," said M2 chairman Craig Farrow. "Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced."
M2 made an attempt to bulk up its business earlier this year, lodging a bid for ISP iiNet in April. However, it was beaten to the punch by TPG Telecom, which got the regulatory green light for the takeover last month.
Perhaps worryingly for M2 and Vocus, the Australian Competition and Consumer Commission (ACCC) said it would not oppose the TPG/iiNet deal, but indicated that any future attempt at consolidation in the fixed broadband market would raise significant competition concerns.
M2 has a strong consumer presence, but Vocus is primarily a wholesale and business services provider, which may go some way towards mitigating the threat to competition.
It has been a busy yea r so far for Vocus, which agreed to buy out network operator Amcom in late 2014 and spent the first six months of 2015 fighting off a challenge from TPG. The firm implemented the merger plan in July.
