The TPG Telecom Ltd (ASX:TPM) share price traded 8.70% higher Thursday following news that the ACCC would not appeal a Federal Court ruling over its planned merger with Hutchison Telecommunications Ltd (ASX: HTA).
For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) was trading at 6439.6, up 1.81%.
TPG + Vodafone: the road to merging
TPG Telecom is one of Australia’s largest broadband and mobile phone providers, with around 2 million broadband subscribers.
Hutchison Telecommunications or just HTA owns half of Vodafone Hutchison Australia. Vodafone Group Plc owns the other 50%.
In 2018, TPG planned to merge with HTA in a potential $15 billion deal.
Before the merger was announced, the proposed tie-up made a lot of sense: combine Vodafone Australia’s vast mobile network with the leading broadband assets of TPG, which includes its namesake as well as the iiNET range of products.
Before and during the initial stages of the proposed merger, an important pillar in TPG’s strategy was the rollout of its own 5G mobile internet to major capital cities. This was going to be rolled out aggressively using equipment from China-based Huawei.
It sounded like a no-brainer for TPG shareholders. They were needing to contend with a fierce squeeze on broadband profit margins due to the rollout of the Australian Government-backed National Broadband Network (NBN).
Unfortunately for both set of shareholders, the original deal between TPG and Hutchison was opposed by the competition watchdog, the Australian Competition and Consumer Commission, on grounds that the market would be more efficient with the existing four major telco players and not three.
The announcement that the ACCC was against the deal, plus the subsequent banning of Huawei’s 5G equipment due to security concerns, made markets jittery, to say the least.
Tide Turning
As Rask Media reported last month, TPG and HTA were pleased when the Federal Court of Australia said it believed the merger would in fact not hurt competition.
This provided some much-needed hope for TPG and Vodafone to merge and create a substantial competitor to Telstra (ASX: TLS) and Optus.
As TPG Chairman David Teoh put it: “TPG is very pleased with the Federal Court decision and looks forward to combining with VHA to create Australia’s newest fully integrated telecommunications operator.”
Tide Turned
Today, more good news followed for TPG and Vodafone shareholders when the ACCC announced it would not appeal the Federal Court’s decision.
“The ACCC remains disappointed by this outcome, which has closed the door on what we consider was a once in a generation chance for increased competition in the highly concentrated mobile telecommunications market,” ACCC Chair Rod Sims said.
“The future state of competition without a merger is uncertain. But we know that competition is lost when incumbents acquire innovative competitors.”
If — more likely, when — the deal is implemented, Vodafone and TPG will be able to offer customers their own bundled packages on both mobile and broadband, rather than providing their services over-the-top by partnering with existing or competing telco networks.
As you can see from today’s share price reactions, shareholders in both companies seem relieved.
TPG Telecom shares were last seen trading at $8.19, giving the company a market capitalisation more than $7 billion.
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