M2 Group and Vocus to merge

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M2 Group and Vocus to merge
David Gareth (Vocus), Amy Adams (New Zealand communications minister) and David Spence (Vocus)

Upheaval in the Australian telecommunications continues with the blockbuster announcement that M2 and Vocus are to merge.

The M2 Group is the parent company of iconic brands Dodo, iPrimus, Commander and Engin.

The all-share transaction would see M2 shareholders receive 1.625 Vocus shares for each M2 share, resulting in a combined company worth more than $3 billion in market capitalisation.

"M2 and Vocus are an excellent fit, being highly complementary and culturally aligned," said M2 chair Craig Farrow. "Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced."

A Vocus-M2 merged entity would equate to a total annual revenue of about $1.8 billion. On top of the combined revenue, the companies stated they expected "cost synergies" of about $40 million per year by the end of the 2018 financial year.

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

The merged portfolio would touch on a wide range of products, including "retail internet; retail electricity and gas; corporate internet and IP voice; wholesale internet and IP voice; data centre and cloud services; international and domestic bandwidth; and dark fibre".

The transaction would see Vocus chief executive James Spenceley continue as executive director with "a focus on telco infrastructure strategy", while M2 chief executive Geoff Horth would remain in that role for the new group.

M2 founder and executive director Vaughan Bowen will continue serving on the board of the new company, "retaining his focus on strategic acquisition opportunities".

Four directors from each side join the new eight-member board, with Vocus chair David Spence retaining his role and M2's Farrow appointed as deputy chair.

M2 shareholders will vote on the merger at a meeting scheduled for "early 2016".

The news comes after fellow telco giants TPG and iiNet made headlines with their $1.56 billion merger, a deal that M2 attempted to scuttle at one stage with its own bid. Vocus itself fought a bitter battle with TPG to acquire service provider Amcom in a saga that forced Spenceley to call TPG's behaviour "disgusting".

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