ACCC approves M2-Vocus merger

The consumer watchdog in Australia has decided not to oppose the M2-Vocus merger because the companies do not directly compete and will therefore not inhibit future competition in the sector.

The Australian Competition and Consumer Commission (ACCC) has announced that it will not be opposing the merge of Vocus Communications and M2 Group in their bid to form the fourth-largest telecommunications provider in Australia and the third-largest in New Zealand, worth more than AU$3 billion.

According to the consumer watchdog, the merger will be permitted to take place because the companies have "limited overlaps" in providing wholesale and retail fixed broadband services and datacentre services -- and even when they do overlap, they are focused on different customer segments, with Vocus targeting enterprise and government while M2 delivers services to residential and small business customers.

ACCC chairman Rod Sims said that the merger would also not reduce competition to a significant extent among telcos.

"The ACCC concluded that this was primarily a merger between two complementary businesses. Significantly, the merged firm will also face significant competition from Optus, Telstra, and TPG. This merger consolidates the fourth player in the market," Sims said.

The companies' Merger Implementation Agreement in September gained the support of both boards, with the companies forecasting combined revenues of AU$1.8 billion for FY16, as well as earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$370 million.

Occurring via an M2 scheme of arrangement, the merger would be scrip based, wherein M2 shareholders will be given 1.625 Vocus shares per M2 share.

M2 chief executive Geoff Horth will be appointed CEO of the combined entity, while founder and CEO of Vocus, James Spencely, will take the role of executive director.

"The merger of Vocus and M2 is a compelling opportunity for all shareholders," said David Spence, chairman of Vocus, in a statement.

"The businesses combine Vocus' telecommunications infrastructure and corporate customer base with M2's demonstrated expertise in the consumer and SME segments. The merger creates the 4th-largest vertically integrated telecommunications company in Australia, and the 3rd largest in New Zealand."

According to the companies, M2 and Vocus will fit together well, as they have similar values and objectives.

"M2 and Vocus are an excellent fit, being highly complementary and culturally aligned," said Craig Farrow, chairman of M2.

"Both have successful track records of creating substantial value for shareholders and, together, we will retain this focus. Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced."

The combined entity would provide retail internet, retail electricity and gas, corporate and wholesale internet and VoIP, datacentre and cloud services, domestic and international bandwidth, and dark fibre.

M2, which operates telco providers Dodo, iPrimus, and Commander, as well as energy provider Engin, in February recorded an 8 percent rise in revenue for the six months to December 2014 to AU$546.2 million, EBITDA up 14 percent to AU$86.1 million, and net profit after tax up 25 percent, to AU$38.5 million.

Vocus also attained Federal Court approval in June to acquire Amcom, after the latter's shareholders voted in favour of the AU$1.2 billion takeover, despite TPG's efforts to block the deal.

M2 had previously attempted to acquire rival telco iiNet, in April launching a predominately scrip AU$2.25 billion counter-bid and eclipsing TPG's initial all-cash offer of AU$1.4 billion in March. M2's offer was backed by iiNet, and would have seen 0.803 M2 shares swapped for each iiNet share, plus a AU$0.75 special dividend.

This resulted in TPG upping its offer the following month to a deal worth around AU$1.5 billion wherein TPG would pay AU$9.55 per iiNet share, incorporating a AU$8.80 cash or scrip consideration and AU$0.75 cash per share.

iiNet shareholders ultimately voted in favour of the TPG acquisition, with the ACCC and the Federal Court also approving that deal in August.

M2 shareholders have yet to approve the deal, with a vote set to take place in early 2016.