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TPG Telecom Limited and Vodafone Hutchison Australia today announced a merger of “equals”, creating an entity with enough scale and financial resources to take on Telstra and Optus.
The merged company will have about 20% of Australia’s mobile phone market and 22% of the fixed line market.
The deal, to create a leading challenger full-service telecommunications provider, will give TPG shareholders 49.9% of the new group and Vodafone Hutchison’s the remaining 50.1%.
The companies say the enterprise value of the merged group will be about $15 billion, with revenue of more than $6 billion and EBITDA of $1.8 billion. Net debt will be about $4 billion.
“We will be a more formidable competitor against Telstra and Optus,” says billionaire David Teo, the founder of TPG.
“The characteristics that have made TPG what it is today — innovative, customer-focused, bold — will be magnified through this combination of such highly complementary businesses.
“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.”
In early trade, TPG shares were up almost 10% to$8.65.
Together the companies own and operate 27,000 km of metropolitan and inter-capital fibre networks, a mobile network with 5,000 sites, international capacity and a strategic portfolio of spectrum assets.
The deal doesn’t include where the company has the island nation’s fourth mobile phone network. this will be floated off to existing shareholders.
TPG is an ASX-listed telco with Australia’s second largest fixed line residential subscriber base of 1.9 million subscribers and a significant corporate, government and wholesale business. TPG is also building its own $1.9 billion mobile network, Australia’s fourth carrier.
Vodafone Hutchison (VHA) is Australia’s third largest mobile operator, owned 50/50 by parent entities Vodafone Group Plc and Hutchison Telecommunications, with 6 million subscribers.
The two companies, while the merger is put together, have agreed to a joint venture bid for a licence for the 3.6 GHz spectrum. The Government is auctioning 125 MHz of 3.6 GHz band spectrum in late November.
The merged group will be called TPG Telecom Limited. The merger is expected to complete next year.
Teoh, the current CEO and Chairman of TPG, will be chairman of the merged group. Iñaki Berroeta, current CEO of Vodafone Hutchison, will be the Managing Director and CEO.
Berroeta says the Australian telecommunications market is characterised by the presence of Telstra and Optus.
“Together, TPG and VHA will provide stronger competition in the market and greater choice for Australian consumers and enterprises across fixed broadband and mobile,” says Berroeta says.
“The combination of our two highly complementary businesses and talented employees will create a more sustainable company, with enhanced capacity to invest in new technology and innovation.”
Here’s what the merged group looks like:
TPH says it expects to report 2018 revenue of about $2.49 billion, EBITDA of $840 million and net debt of $1.26 billion, ahead of previous guidance. The company is due to report its 2018 results on September 18.
TPG is being advised by Macquarie Capital as financial adviser and Herbert Smith Freehills as legal counsel.
VHA is being advised by BofA Merrill Lynch and Deutsche Bank, and Norton Rose Fulbright as legal counsel.
The merger is dependent on regulatory approvals including from the consumer watchdog ACCC and Foreign Investment Review Board.