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M2 shares jump on merger plan with Vocus

The combined M2 and Vocus networks will provide a strong base for the provision of services to the enterprise and small business segments, and to small independent ISPs who purchase telecommunications capacity.

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Perhaps worryingly for M2 and Vocus, the Australian Competition and Consumer Commission (ACCC) said it would not oppose the TPG/iiNet deal, but indicated that any future attempt at consolidation in the fixed broadband market would raise significant competition concerns.

It will be the third billion-dollar deal in the sector in less than a year and further consolidate the second-tier broadband players behind market colossus Telstra.

The firms describe the merged entity as “a full-service vertically integrated, infrastructure-backed trans-Tasman telco”.

In a statement, Vocus said the companies would have combined revenues of around $1.8bn and earnings before interest, tax, depreciation and amortisation (EBITDA) of $370m in the 2016 financial year.

M2, meanwhile, was left licking its wounds after missing out on its priority prize, iiNet, which was gobbled up by rival suitor TPG Telecom for $1.6 billion in cash and scrip.

The two companies said this morning they have entered into a “merger implementation agreement” that will see M2 shareholders receive 1.625 Vocus shares for each M2 share owned. “The deal should be very positive to both stocks due to cost savings and other synergies”, Market Matters analysts said in a report.

James Spenceley, Vocus chief executive and founder, will continue on the combined board as executive director with a focus on telco infrastructure strategy, while Geoff Horth, M2 chief executive will be appointed chief executive of the merged group.

Sydney-based Vocus is a leading provider of data centre, dark fibre and internet across Australia, New Zealand and the US.

If anything, the impact of the merger is likely to be greater in New Zealand than in Australia.

Vocus merged with rival Amcom earlier this year despite a bid by TPG Telecom to thwart the deal.

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

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The backbone network provider’s share price had fallen slightly to $6.46 following the announcement of the M2 merger, while M2 shares jumped around 24 percent to $10.36 at the time of writing.

Former Amcom chairman Tony Grist will sit on the board of the merged group