M2, Vocus merge to form down under’s newest billion-dollar telco

Oz telco consolidation continues

Fibre and data centre owner Vocus and consumer/business carrier and service provider M2 are merging to create what they are calling a “full-service vertically integrated telco”.

Assuming shareholders agree and the plan gets nodded through by regulatory authorities — both seem likely — they will merge early next year to become Australia’s fourth largest telco.

The new entity will also be the third largest telco in New Zealand.

The merged business will have a market capitalisation of more than AU$3 billion. According to a statement lodged with the Australian Stock Exchange it will have annual revenue of around $1.8 billion and earnings of $370 million before those famous (and often elusive) synergies executives love to talk about during mergers.

The same stock exchange document says the goal is to create: “…A full-service vertically-integrated, infrastructure-backed trans-Tasman telco, with scale and proven capabilities relevant to every individual, corporate and government entity in Australia and New Zealand”.

Vocus mainly operates in business-to-business and wholesale markets. It launched in the late 2000s on the back of fibre infrastructure rollout, and has expanded its footprint via acquisition, while buying and building data centres.

M2’s business is largely retail. Among other services the two told the ASX the combined portfolio will include dark fibre, data centres, international and domestic bandwidth, retail and business internet services. They also say they will offer retail electricity and gas services.

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

The two have both made strategic acquisitions in NZ. Last year M2 acquired CallPlus, at the time New Zealand’s third largest telco. Vocus, meanwhile, has acquired ISP and data centre operator Maxnet, and wholesale network operator FX Networks.

Craig Young, CEO of Tuanz (Telecommunications users association of New Zealand), tweeted that he estimates the merged company will have a 17 percent share of the New Zealand broadband market. The National Business Review reported comments by M2 Group NZ boss Mark Callander the business is shooting for a 25 percent market share. ®