ISP ClubTelco has initiated a reverse takeover bid for Perth's EFTel, taking a controlling 75 percent stake in exchange for a multi-million dollar capital injection.
ClubTelco and EFTel share the same wholesale DSL service provider, Dodo Wholesale, which is a Telstra reseller.
ClubTelco and Dodo have some of the same shareholders but the businesses have operated separately.
Dodo chief Larry Kestelman told iTnews that ClubTelco planned to turn the combined entity into a "strong public company".
"We've always seen EFTel as a company that can do a lot better than its trading history [suggests]," Kestelman said.
"We always saw opportunity and more upside in the business."
Kestelman said the businesses were synergistic, targeting what he called the "premium" market for DSL and voice services.
He said those synergies did not spell large-scale staff reductions at either company.
"We felt those two entities are very like-minded in the type of customers they're going after," Kestelman said.
"With our strong marketing background, if we give the business the right financial backing and scale then it will be successful."
Kestelman said he would not lead the newly-combined entity. He said that ClubTelco would likely seek to inject some fresh faces into the management structure of the combined entity while preserving some existing roles.
"We're still working with the board [on that]," he said.
EFTel chief John Lane conceded to iTnews that the change of control was "obviously going to have its effect at the C-Level" of EFTel.
"I've said to my team there's not any excess of staff, and in terms of management there's not a great deal of high-level management at ClubTelco," Lane said.
"My understanding is that ClubTelco has been managed by the senior people at Dodo.
"It's certainly not the case that our [EFTel's] management team will not be required but it's not the case that everyone here is guaranteed a position in the future.
"It's just a state of flux until the deal is finalised."
Lane said that the merger would mean an expanded product set for EFTel customers – specifically, mobile broadband, mobile voice and VoIP offerings.
Consolidation in the ISP industry was expected as the industry transitioned into an NBN world.
It was expected that ISPs would need hundreds of thousands of DSL tails to run a viable national business on NBN infrastructure. Internode pegged that number at 250,000 last week.
Lane made no secret that a combined ClubTelco and EFTel entity would put the business on the path to growth they needed ahead of the NBN.
"Everybody recognised we were sub-scale and ClubTelco were sub-scale as well," Lane said.
"My view is we'll probably need significantly more than [the 120,000 of the combined entities] for [an NBN business] to be sensible, so we've got a bit to do.
"But the beauty of this connection [with ClubTelco] is that Dodo knows how to grow organically. They're without peer.
"Their growth has been phenomenal. It should see the [combined] business placed in a very healthy state."
How it could look
The merged entity would have around 120,000 active DSL services "and in excess of $55 million annual turnover", according to an ASX statement.
It would have about 300 staff and operations in Manila, Kuala Lumpur, Melbourne, the Gold Coast and Perth.
Existing shareholders in EFTel would hold a 24.4 percent stake in the newly-merged company. The "vendors and new shareholders" of the merged entity would take the remaining 75.6 percent.
"The agreement will see $2.1 million of additional equity capital injected by the new shareholders," a statement from EFTel said.
"Combined with the introduction of the ClubTelco business, the new capital being brought into the [EFTel] business is estimated at $9.6 million."
The deal was expected to be wrapped up within three months, subject to shareholder approval.