SP Telemedia -- otherwise known as Soul -- yesterday announced plans to merge with TPG Internet, which will create one of Australia's largest DSLAM footprints.
Soul hopes to buy TPG for AU$150 million in cash and 270 million shares, which at their closing price on 6 February (AU$0.35) amounts to AU$94.5 million. The deal will be complete in April if granted shareholder approval.
TPG has 238 DSLAMs, which will result in a combined Soul/TPG network of 303 DSLAMs compared with the 315 owned by Optus, 299 operated by AAPT/PowerTel/iiNet and 95 for NEC/Nextep.
Their combined customer base will total 700,000, with TPG and Soul bringing 200,000 and 500,000 to the table respectively. Soul has estimated the value of TPG's customers at AU$9 million for the 2008 financial year. Forecast revenue for the combined company this year is AU$469 million.
Cost benefits for the combined company will include the potential to migrate some of Soul's operations to TPG-owned Orchid operations in the Philippines, removing duplicated personnel and reducing capital expenditure on the DSLAM rollout, according to Soul.
"The merger of SP Telemedia and TPG will create one of Australia's largest and most profitable telecommunications companies with extensive owned network coverage for voice, video and data applications," chairman Robert Millner said in a statement.
The deal is likely to create a more competitive company, according to Ovum's research director David Kennedy.
"This reflects a trend towards consolidation in the broadband market," said Kennedy, who explained that although there would be fewer competitors, the competition would be tougher. "These entities will be looking to lower prices and make use of economies of scale," he added.
TPG was founded in 1986 when it sold computer equipment as well as network and Internet services, but dropped the computer component in 2005. Last April it became the parent company of listed Internet provider Chariot -- which has a market capitalisation of AU$9 million -- by acquiring a 70.25 percent shareholding.
Soul intends to offer for the rest of the Chariot shares if its shareholders approve the merger.