M2 acquires People Telecom for $17m

M2 Telecommunications announced today it will take over People Telecom in a combined stock and cash deal.

(Credit: ZDNet.com.au)

People Telecom shareholders would receive 0.0916 M2 Telecommunications shares for every People Telecom share as well as 0.6886 cents in cash. There was also a bonus of 0.344 cents per share for the case that People Telecom's net cash reaches a certain level before the shareholders held a meeting. The offer, valued between 5.46 and 5.81 cents per share, offered People Telecom shareholders a premium on the price of their shares for the 30 days to 3 December 2008 of over 100 per cent.

People Telecom chair Barry Hamilton said the driving force behind the around $17 million takeover was the consolidation of the telecoms industry. "This really isn't driven at all by the current economic crisis," he said. The simple fact was that the companies would have $250 million combined revenues and would do better together than they could alone, he said.

The two companies were a great fit, according to Hamilton, as they were both national telecommunications companies with one having a stronger presence in Sydney and the other in Melbourne. He believed they also complemented each other in the market.

"People, we've been sitting in the small to medium sized business part of the market. M2's had more of an emphasis on the consumer part of the market," he said. M2 also had a stronger wholesale focus than People, he said.

The People Telecom board will recommend its shareholders approve the takeover when the scheme is considered at the company's general meeting in March 2009.

Vaughan Bowen, MD of M2, said buying People Telecom was logical because of the added scale it would bring both companies.

"The addition of People to M2's strongly growing customer base is expected to increase group revenues to greater than $250 million on an annualised basis and is expected to considerably increase consolidated earnings and earnings per share," he said in a statement. The deal is expected to increase earnings per share for the company by 15 to 20 per cent.