Australian telecommunications firms Vocus and M2 have detailed plans for an all-scrip merger in an effort to create a vertically integrated telco worth more than $3 billion.
The pair this morning announced they had entered into a merger implementation agreement by way of an M2 scheme of arrangement.
Under the deal M2 shareholders would receive 1.625 Vocus shares for each M2 share, giving them about 56 percent of the combined entity.
M2 said its board had unanimously recommended shareholders vote in favour of the deal, in the absence of a better proposal.
A merger would create the fourth largest telco in Australia. The entity would be known as Vocus.
Its product portfolio would include retail internet, electricity and gas; corporate and wholesale internet and IP voice; data centre and cloud services; international and domestic bandwidth; and dark fibre.
The two companies would have combined revenue of $1.8 billion and EBITDA of around $370 million in FY16.
A merged Vocus-M2 would boast a market capitalisation of more than $3 billion.
The pair expect to experience cost synergies of around $40 million each year up to FY18.
Should the deal be approved, M2 CEO Geoff Horth will serve as the combined entity's CEO, while Vocus CEO James Spenceley will sit on the board as executive director, with a focus on infrastructure strategy.
M2 founder Vaughan Bowen would also sit on the board as an executive director charged with looking into strategic acquisitions.
The board would consist of eight directors, four each from Vocus and M2. Vocus chairman David Spence would be chairman of the combined group, and M2 chairman Craig Farrow would serve as deputy chairman.
Former CEO of Amcom - which was recently swallowed up by Vocus - Tony Grist will continue as a non-executive director.
Spence said the merger was a "compelling opportunity" for M2 shareholders.
"The businesses combine Vocus' telecommunications infrastructure and corporate customer base with M2's demonstrated expertise in the consumer and SME segments."
Farrow called the merger an "excellent fit".
"Both have successful track records of creating substantial value for shareholders and together, we will retain this focus," he said.
A scheme booklet will be issued to M2 shareholders later this year, and a vote will be held in early 2016.
Vocus owns more than 1600km of fibre infrastructure in Australia and 4300km in New Zealand.
Its metro network in Australia connects more than 3400 buildings, and it has around 30,000 extra buildings in its footprint.
The merger with Amcom - which created a $1.2 billion telco powerhouse - was hard-won after rival TPG attempted to block the deal from going ahead on several occasions.
M2's flagship Australian products are the Commander and Engin brands for business and Dodo and iPrimus for consumers.
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M2 had been hunting for a takeover since its bid to merge with rival iiNet failed earlier this year.
Horth told iTnews in late August the company was on the prowl for an acquisition after its $1.6 billion attempt to swoop in and steal iiNet out from under TPG failed to gain the support of iiNet's board.
The TPG/iiNet merger had put M2 a lagging fourth behind the three major broadband players, and spurred the company to look at other options to ensure it didn't fall behind.
However, at the time the Australian Competition and Consumer Commission indicated that any further consolidation between the biggest broadband players would not be approved.
The competition watchdog today confirmed it did not consider Vocus to fall within that group.
"The ACCC is aware of the proposed acquisition. If the ACCC decides to conduct a public review, details will be made available on our mergers register," a spokesperson said.
"The ACCC reviews mergers and acquisitions which have the potential to raise concerns under the Competition and Consumer Act 2010. The CCA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market."
In the pair's scheme of arrangement, Vocus said it had received written notice from the ACCC which indicated the competition watchdog did not plan to oppose the merger.
More to come