Vodafone, TPG to become $15b telco giant to disrupt Optus and Telstra
A planned $15 billion merger of equals between Vodafone Hutchison Australia and TPG Telecom will allow the two smaller players to disrupt Optus and Telstra, and lead to more competition rather than less, Vodafone chief executive Inaki Berroeta says.
TPG and Vodafone, which last week revealed they had entered "exploratory discussions" about a merger, on Thursday confirmed they had reached agreement on an all-scrip deal. TPG’s shareholders will emerge with 49.9 per cent of the combined telecommunications company and Vodafone shareholders will hold 50.1 per cent. The new company will be called TPG Telecom Ltd, and TPG boss David Teoh will own 17.12 per cent of the newly merged entity.
The Foreign Investment Review Board and the Australian Competition and Consumer Commission will need to approve the deal.
Mr Berroeta, who will become chief executive of the merged entity, told Fairfax Media he had a “high degree of confidence” the merger would be approved by the competition regulator, saying the consolidation would give the combined telcos greater capacity to take market share from the bigger providers.
“The way I believe people will look at it is the benefit it will bring to the customer,” Mr Berroeta said. “It gives us a lot of opportunity to innovate."
He said the market ultimately needed “strong players” and competition wasn’t necessarily about the “number” of participants, but their ability to compete. TPG Telecom typically operates in the fixed space, while Vodafone is known for its mobile customers.
The Australian Competition and Consumer Commission (ACCC) has regularly pointed to the entrance of TPG Telecom, and its planned fourth mobile network, as bringing greater competition to the mobile industry.
“We are doing this to really compete harder [with Optus and Telstra], we want to grow our market share,” Mr Berroeta said.
“The idea to combine the businesses has been around in my head for many years, and David’s [Teoh, chief executive of TPG] head.
“Whether TPG was going mobile or not [we were planning to merge] ... it was a matter of when."
TPG began moving its mobile customers over from Optus' network to Vodafone's in 2015.
Vodafone will have net debt of about $1.9 billion after a restructure of its debt facilities post-merger. TPG will contribute $1.67 billion in debt and $352 million in spectrum instalments. If the net debt balance is below this amount, there may be a special fully franked dividend for current shareholders.
TPG chairman and chief executive Mr Teoh, who will become chairman of the merged business, said in a statement the tie-up represented an “exciting step-change” in the company’s evolution.
“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,” Mr Teoh said.
TPG directors Robert Millner and Shane Teoh, two nominees from Vodafone, two from Hutchison Australia and two independent directors will make up the new board.
TPG directors have recommended shareholders vote in favour of the deal, if there is no superior proposal.
More to come