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TPG Telecom (ASX: TPG) and Vodafone Hutchison Australia (VHA) are set to join forces after agreeing to a merger that would create a fully integrated telecommunications operator with an enterprise value of $15 billion.
In an announcement to the Australian Stock Exchange this morning, the companies said the proposed deal would create a "more effective challenger" to Telstra and Optus.
Through increased scale and greater financial strength, the two major telco players believe a deal would put them in a better position to invest in 5G technologies to deliver faster services.
TPG currently has Australia's second largest fixed line residential subscriber base with more than 1.9 million subscribers, while Vodafone is the country's third largest mobile operator with around six million subscribers.
The deal would entail a "merger of equals" whereby TPG shareholders would own 49.9 per cent of the new entity and VHA shareholders would own the remaining 50.1 per cent.
VHA is owned 50-50 by British company Vodafone Plc and locally listed entity Hutchison Telecommunications Australia (ASX: HTA), the latter having seen its share price more than double since speculation about the merger began last week.
TPG chairman David Teoh described the merger as an exciting "step-change" in the companies evolution, and would deliver benefits to both shareholders and customers.
"Together TPG and VHA will have a comprehensive portfolio of fixed and mobile products, and will own the infrastructure required to deliver faster services and more competitive value propositions to Australian customers," he said.
"With this merger, we will be a more formidable competitor against Telstra and Optus."
VHA CEO Iñaki Berroeta echoed Teoh's comments, emphasising a new merged company would provide stronger competition and greater choice for Australian consumers and enterprises across broadband and mobile.
"The combination of our two highly complementary businesses and talented employees will create a more sustainable company, with enhanced capacity to invest in new technology and innovation," he said.
"We are confident that this merger will be highly beneficial to customers, shareholders and other stakeholders."
TPG and VHA anticipate the merger will be completed next year, but the deal is still subject to approvals from shareholders, the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB).
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