- Combined revenue of circa $1.8bn and EBITDA of around $370m in FY16E1, before synergies
- Market capitalisation in excess of $3bn and eligible to sit well within the S&P/ASX 100
- The merged company becomes the 4th largest integrated telco in Australia and the 3rd largest in New Zealand.
- Expected cost synergies of about $40m per annum, to be fully realised by the end of FY18
- Vocus and M2 Boards unanimously support the merger
- An all-share (‘scrip’) transaction, where M2 shareholders will receive 1.625 Vocus shares for each M2 share
- Implemented via an M2 scheme of arrangement
Vocus Communications (ASX:VOC) and M2 Group (ASX:MTU) have entered into a Merger Implementation Agreement (MIA), under which the two companies will merge, by way of an M2 scheme of arrangement (Scheme), to create a full-service vertically integrated telco valued at more than $3 billion
M2 shareholders will receive 1.625 Vocus shares for each M2 share, if approved.
M2’s Board of Directors have unanimously recommended that shareholders vote in favour of the Scheme, in the absence of any superior proposal and subject to the Independent Expert opining that the scheme is in the best interests of M2 shareholders.
The MIA and the Scheme are subject to usual conditions precedent for a scrip merger such as this, including M2 shareholder, Court and regulatory approval (including ACCC), the Independent Expert’s opinion, and no material adverse change occurring to either party.
The obligations of Vocus and M2 regarding the implementation of the Scheme, the Scheme conditions and deal protections are set out in the MIA, a full copy of which will be released via an ASX announcement today.
The merged company becomes the 4th largest integrated telco in Australia and the 3rd largest in New Zealand.
It will be a full-service vertically integrated, infrastructure-backed trans-Tasman telco, with scale and proven capabilities claimed to be relevant to every individual, corporate and government entity in A/NZ.
The new entity will have a diverse product portfolio encompassing: Retail internet; Retail electricity and gas; Corporate internet and IP voice; Wholesale internet and IP voice; Datacentre and Cloud service; International and domestic bandwidth; Dark fibre.
Vocus chairman, David Spence, said in a statement: “The merger of Vocus and M2 is a compelling opportunity for all shareholders. 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 fourth largest vertically integrated telecommunications company in Australia and the third largest in New Zealand.”
M2 chairman, Craig Farrow, said: “M2 and Vocus are an excellent fit, being highly complementary and culturally aligned. 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.”
Other major details announced include:
- Strategically positioned to take full advantage of the NBN in Australia and UFB in New Zealand
- Combined revenue of c. $1.8bn and EBITDA of c. $370m in FY16E2, before synergies
- Combined market capitalisation of $3bn+ and eligible to sit well within the S&P/ASX 100
- Expected cost synergies of c. $40m per annum, to be fully realised by the end of FY18
- Strong combined balance sheet with leverage of c. 1.8x net debt to FY16E EBITDA3
- Significant revenue synergies available via expanded product set and distribution capabilities
- Combines two closely aligned, ‘challenger’ cultures
Management and Governance
Vocus CEO and founder, James Spenceley, will continue on the combined Board as Executive Director with a focus on telco infrastructure strategy. M2 CEO, Geoff Horth, will be appointed as the CEO of the merged group.
M2 executive director and founder, Vaughan Bowen, will also continue on the combined Board as executive director, retaining his focus on strategic acquisition opportunities.
The merged entity’s Board will be comprised of eight directors, with four each from Vocus and M2. Spence will be chairman of the combined group while Farrow will be appointed deputy chairman. Tony Grist, formerly of Amcom Telecommunications, will continue as a non-executive director.
A Scheme Booklet is expected to be dispatched to M2 shareholders in late 2015.
M2 shareholders will vote at a Scheme meeting expected to be held in early 2016. Subject to the conditions of the Scheme being satisfied, the Scheme Implementation Date will be early 2016.
Vocus is being advised by Credit Suisse Emerging Companies and Minter Ellison. M2 is being advised by Goldman Sachs and Allens.
Vocus Communications is an ASX-listed leading telecommunications provider of datacentre, dark fibre and international internet connectivity across Australia, NZ, Singapore and the US. The company provides high performance, high availability, and highly scalable communications solutions.
It owns over 1600km of metro fibre in Australia and over 4300km of intercity fibre in New Zealand. Vocus’ metro fibre network connects more than 3400 buildings in capital cities and has an additional 30,000 buildings within its footprint.
Vocus has a track record of accretive acquisitions, acquiring datacentre providers E3 Networks in 2010 and Perth iX in 2011, dark fibre provider Digital River in 2011, Maxnet and Ipera Communications in 2012, the Bentley Data Centre and FX Networks in 2014, and the data centre business of Enterprise Data Corporation and Amcom Telecommunications in 2015.
M2 Group is a provider of a range of communication, utility and insurance services to Australian and New Zealand households and small businesses.
In Australia, M2’s business segment encompasses the Commander and Engin brands, offering a suite of traditional and next-generation managed voice and data services, equipment, personalised service and value-added offerings. The consumer segment, under the brands Dodo and iPrimus, provides Australian households with a low-cost alternative for the full range of telecommunications services in addition to energy and insurance.
In New Zealand, M2 operates under the brands CallPlus, Slingshot, Orcon, 2Talk and Flip. The CallPlus group of companies is New Zealand’s third largest provider of broadband, mobile and fixed line services. The Slingshot and Orcon brands spearhead CallPlus’s consumer offerings, with ‘CallPlus Business’ and ‘2Talk’ aimed at the small and medium business market.