TPG, VHA $15bn merger plan under scrutiny
TPG Telecom and Vodafone Hutchison Australia (VHA) have reached an agreement regarding the proposed merger of equals between the two companies, in a deal that would create an entity with an enterprise value of $15 billion.
The two companies first confirmed they were negotiating a potential merger late last month, as part of plans to create a full-service telecoms operator able to better compete against Telstra and Optus.
Under the proposal, the merged company would take on the TPG Telecom name and be 49.9% owned by TPG shareholders. Meanwhile, Vodafone Group and Hong Kong-based conglomerate CK Hutchison, joint owners of VHA, would own the remaining 50.1%.
VHA operates the Vodafone Australia brand, the nation’s third-largest mobile operator with a combined 6 million customers.
TPG is Australia’s second-largest residential fixed line operator with over 1.9 million residential subscribers in addition to its corporate, government and wholesale businesses.
The combined company would own a network consisting of over 27,000 km of metropolitan and inter-capital fibre, over 5000 mobile sites and international transit capacity.
Meanwhile, the planned merger represents a departure from TPG’s previous plan of entering the mobile market as Australia’s fourth mobile operator. The company had already been offering 4G services on the Vodafone network as a mobile virtual network operator.
But TPG and VHA have separately also signed a joint venture agreement to participate in ACMA’s planned upcoming auction of 3.6 GHz 5G spectrum in late November. The joint venture agreement will persist even if the merger fails to proceed.
The ACCC has announced it will commence a public review into the proposed merger, and has set an initial time frame of 12 weeks for the review.
The review will explore the competitive impact of the merger on competition in the mobile market due to TPG’s presence as an MVNO and on the fixed line market due to Vodafone’s foray into offering nbn broadband plans.
The regulator also plans to investigate the joint venture agreement to see if it raises any competition concerns.
GlobalData technology analyst Siow Meng Soh said that if they can pull it off, the merger will be a win-win for both companies.
“As standalone companies, VHA and TPG will be competing against each other for the cost-sensitive segment of the market. As a single provider, they will have greater economies of scale and bargaining power with suppliers,” he said.
“TPG will get instant access to a nationwide mobile network to offer customers competitive fixed-mobile bundled services. VHA gets access to enterprise accounts, exposure to more SMBs and a solid fixed network infrastructure, [which can provide a] better margin than buying wholesale nbn services.”
The planned merger will also give the companies more scale and bargaining power during the upcoming 5G rollouts, and could help VHA avoid falling too far behind Telstra and Optus in terms of planning and implementation of the next-generation mobile technology, Siow Meng Soh said.
But he added that the merger is not without its challenges, which include two very different business focuses, with TPG concentrating on keeping costs low and the organisation lean, while Vodafone emphasises value-added services and the customer experience.
“After the merger, Vodafone Group’s ownership will be lowered to 25.05%, which throws into question the amount of influence the new entity will have and how much support it will offer going forward,” he said.
“Lastly, the merger is subject to regulatory approval as a standard procedure but this deal will attract greater scrutiny from the ACCC due to the impact on competition.”
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