On 13 February 2020, The Federal Court of Australia had approved the TPG-Vodafone merger. The Court had declared that the proposed merger would not lessen the competition and offered the competition regulator, ACCC, an option to lodge an appeal against the Court’s decision.
On 05 March 2020, the Australian Competition and Consumer Commission (ACCC), in its media release, confirmed that it would not appeal the recent decision of the Federal Court related to the proposed merger of Vodafone Hutchison Australia (ASX:HTA) and TPG Telecom (ASX:TPM).
The ACCC stated that it doesn’t have the grounds for an appeal to prove an error of law by the judge. However, the regulator is not satisfied with the verdict, which has put an end to, what it believed to be, a once in a generation opportunity for enhanced competition in the extremely concentrated mobile telecom market.
ACCC feels that the competition would lessen with this proposed merger and will continue to oppose the merger irrespective of the Federal Court’s verdict.
The journey of the proposed merger started on 30 August 2018, when the two parties Vodafone and TPG Telecom entered a Scheme Implementation Deed and agreed to a proposed merger of equals and set a fully integrated telecom operator in Australia.
Post the merger of the two companies, TPG shareholders would own 49.9% of the merged entity while Vodafone shareholders would own the remaining 50.1%.
The two companies were of the view that the proposed merger would give scale as well as financial power to compete more effectively with Telstra Corporation Limited (ASX:TLS) & Optus. The merger was also supposed to enable both the businesses to invest & drive innovation, service as well as product development to benefit Australian telecommunications consumers.
On 10 December 2018, TPG Telecom’s joint venture with VHA Australia Mobile JV Pty Ltd, Mobile JV Pty Ltd became successful in bidding for spectrum in the 3.6GHz band for which the joint venture was supposed to pay $263.3 million in early 2020 for the lots that it purchased.
Mobile JV Pty Ltd was successful in bidding for 12 5MHz lots of spectrum in the regions including Sydney, Melbourne, Brisbane, Canberra, Adelaide, and Perth.
On 13 December 2018, ACCC came into the picture when it showed its concerns regarding the proposed merger between TPG Telecom and Hutchison Telecommunications (Australia), and its probable influence on mobile and broadband market in Australia.
In its media release, the regulator shared its initial view that TPG was on the way to become the 4th biggest mobile network operator in Australia and was likely to be an aggressive contender as well. Removing TPG as an independent competitor with its own network would result in a reduction in competition in an already concentrated market for mobile services. If TPG remains detached from Vodafone, there would be a lower probability of a need to adopt an aggressive pricing strategy & the requirement of low-priced mobile plans providing huge data allowances.
ACCC also highlighted that it would carefully assess the effects of eliminating Vodafone as a competitor in the fixed broadband market. Also, the regulator has considered the longer-term impact of the proposed merger, given the possibility of improved acceptance of mobile broadband services of fixed home broadband services after the rollout of 5G technology.
On 08 May 2019, ACCC had opposed the TPG and VHA merger. However, VHA and TPG were committed to the proposed merger and decided to file a legal action against the ACCC decision. The legal action would involve obtaining declaratory relief from the Federal Court, that has the authority to determine whether the merger should be allowed on the grounds that it will not significantly reduce competition.
Further, the two companies decided to extend their term of the scheme till 31 August 2020, which would give ample time for the Court process as well as the merger process to finish.
On 24 May 2019, TPG confirmed the lodgement of Federal Court proceedings in order to ensure that the proposed merger would not reduce the competition. VHA was the applicant, while ACCC and TPG were the respondents.
On 10 September 2019, the parties came for the first-day hearing where Vodafone’s CEO confirmed that the sound health of the company’s business and opposed the claims of ACCC regarding the proposed merger to compete with market players like Telstra and Optus.
Click here to know more about the first day of the hearing
On 30 September 2019, Justice John Middleton predicted the judgement on the proposed merger to come not before February 2020. On 13 February 2020, the final verdict came and was in favour of the proposed merger.
The media release had a positive impact on the share price of Vodafone Hutchison Australia and TPG Telecom. Vodafone’s share zoomed up by 13.33% and settled at $0.170 while the shares of TPG Telecom zoomed up by 9.562% and settled at $8.250. Around 2,299,946 shares of Vodafone while 4,828,290 shares of TPG telecom traded on ASX.
Overall there was a positive influence of this news on the communication sector as well, which closed the day 2.2% higher compared to its previous close and settled at 1,261.3.