TPG and Vodafone Merger, the Final Judgement:
13 February 2020 finally arrived and it brought the judgement related to the proposed merger of TPG Telecom Limited (ASX: TPG) and Vodafone Hutchison Australia Pty Limited (VHA) via a Scheme of Arrangement was in favour of the two companies. The Federal Court of Australia (court) showed a green flag to the proposed merger.
Source: TPG’s AGM Presentation
The court believes that the merger will not, and is not prone to, considerably reduce competition in the market. Also, the Court provided ACCC to lodge an appeal within 28 days.
The implementation of the Scheme of Arrangement still depends on the number of conditions such as approvals from other regulatory bodies, the Federal Court, along with the shareholders of TPG Telecom. Both TPG and VHA are working collectively to execute the merger transaction as soon as possible to provide the benefits to the Australian citizens.
Subject to the approvals, TPG expects the merger to complete during mid-2020.
Post the Final Judgement:
It was a momentous day for both the companies and were on cloud nine post the green signal from the Federal Court.
Vodafone’s CEO was also excited with the judgement as he would be taking up the position of the CEO, while David Teoh, the boss and founder of TPG will be the non-executive chairman of the merged group.
TPG and Vodafone said that both the companies were ready to take on Telstra Corporation Limited (ASX: TLS) and Optus as the third telecommunications giant in Australia.
On one hand, the judgement brought a smile to Vodafone and TPG, but on the other hand, it was a major blow to ACCC’s boss Rod Sims.
On 30 August 2018, TPG Telecom and Vodafone Hutchison Australia announced that the companies had signed a Scheme Implementation Deed and agreed to a proposed merger of equals to establish a fully integrated telecommunications operator in Australia.
It was mentioned that after the conclusion of the merger, TPG shareholders were supposed to be the owner of 49.9% of the newly merged group while the remaining 50.1% of the merged group was to be held by VHA shareholders.
Through this merger, the companies expected that the merger would give scale & financial power to beat more effectively with Telstra and Optus. The merger would also enable the companies to invest & drive innovation, service and product development to benefit Australian telecommunications customers.
On 10 December 2018, TPG Telecom advised that its JV with VHA Australia, Mobile JV Pty Ltd became the victorious bidder in the auction for spectrum in the 3.6 Giga Hertz band for which Mobile JV would be paying $263.3 million in early 2020 for the lots that it bought.
Moreover, 13 December 2018 became the turning point for the proposed merger after a media release of ACCC with concerns about the proposed merger.
According to ACCC’s preliminary view during that time, TPG was on the way to become the 4th mobile network operator in Australia and an aggressive opponent. Australian Competition and Consumer Commission (ACCC) highlighted its worry related to TPG, which was the elimination of TPG Telecom as a new independent player with its own network, in what is a concentrated market for mobile services, would be expected to cause a significant competition reduction.
In the event of TPG staying away from VHA, it could embrace an assertive pricing approach & providing the end-users with cheap mobile plans with huge data allowances to them.
ACCC’s preliminary view regarding the merger was that the merged entity would not have the incentive to work in a similar manner and would also result in the reduction in the competition.
Further, ACCC also agreed to examine the effect of eliminating Vodafone as a contender in the fixed broadband market.
As notified on 8 May 2019, ACCC resisted the proposed merger amid the two companies via a Scheme of Arrangement. However, both the parties remained committed to the proposed merger. Also, both the entities agreed to extend the term of Scheme documents until 31 August 2020 in order to provide sufficient time to the court proceedings to finalise along with the merger to come to its conclusion.
On 24 May 2019, TPG Telecom announced that it lodged proceedings with the Federal Court of Australia in order to take approval on the proposed merger between TPG and Vodafone to not have the effect of substantially lessening competition.
The statement of Claim identifies Vodafone as the applicant and ACCC and TPG as the respondents.
Court Case Begins:
First Day Hearing:
10 September last year was the first day of the hearing, in the court and Mr Inaki Berroeta, the CEO of Vodafone Hutchison Australia confirmed that the health of his business was good and he opposed the claim of ACCC that telco was not needed to merge with TPG to contend with contenders like TLS and Optus.
In the first hearing, ACCC clarified that both the businesses were healthy and at par to meet the level of its competitors. The court was informed that TPG and Vodafone were strong enough to compete individually. However, in case of the merger, both the businesses would have immense market influence & lock in a telecommunication market which would be under the grip of 3 super telecom organisations.
However, ACCC’s statement was opposed by Vodafone’s CEO and stated that Vodafone’s strength had been optimistic & opposed the allegations that it had the same spectrum holdings to Telstra & Optus. Further, Mr Berroeta highlighted that Australian Competition and Consumer Commission required to explain methods in which the TPG Telecom & Vodafone merger would result as the reduction in the competition in the mobile retail market.
Ms Catherine Button, QC, the ACCC’s counsel responded to the statement, and stressed on the technical challenges as per the proof & stated that Vodafone had additional spectrum per client in metropolitan markets than big players like TLS & Optus.
Nevertheless, Mr Berroeta opposed the computation, and according to the statement provided by the witness of ACCC, Mr Mike Wright, both Telstra & Optus had additional spectrum per client than Vodafone & TPG. He also contradicted the statement given by Dr Button when she could not explain the numbers provided by Mr Wright.
The Next Update; Statement from Justice, John Middleton:
Previously, on 30 September 2019, Justice John Middleton had projected that the decision on $15 billion merger between Vodafone and TPG Telecom would not come before February 2020 and also stated that decision would have a considerable implication on the telecom industry at all scale.
Finally, the verdict related to the proposed merger came on 13 February 2020.
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