TPG Shares On A Nose Dive - ACCC Raised Concerns Over Merger Between TPG And VHA

Telecommunications Service Provider, TPG Telecom Limited’s (ASX: TPM) shares went down by 16.67% today (i.e., 13 December 2018, 1:10 PM AEST) after Australian Competition and Consumer Commission (ACCC) raised its concerns regarding the proposed merger of TPG and Vodafone Hutchison Australia Pty Limited (VHA), and its potential impact on Australia’s mobile and broadband markets.

ACCC has published a statement of issues today (i.e., 13 December 2018) in which it has indicated that the merger of TPG and VHA could result in a substantial lessening of competition in the Telecom Industry. As per ACCC, TPG is currently on track to become the fourth mobile network operator in Australia and an aggressive competitor, and if it remains separate from Vodafone, it could also adopt an aggressive pricing strategy, offering cheap mobile plans with large data allowances. Therefore, ACCC is concerned that if TPG is removed as new independent competitor after the merger, then there will be a substantial lessening of competition in the mobile market.

According to ACCC Chair Mr. Rod Sims, if the Australian mobile market remained with 3 major players rather than 4, then there is a high possibility that these players could increase their prices and offer less innovative plans for customers. Further, ACCC is also considering that the Vodafone which is currently a relatively minor player in fixed broadband could become a major competitor in the future on the back of its high level of brand recognition and existing retail mobile customer base.

ACCC is also considering the longer-term impact of this TPG and VHA merger, as it is expected that the subscriptions of mobile broadband services will increase in the future, especially after the rollout of 5G technology.

In response to the ACCC concerns, TPG has released a statement in which it has acknowledged the ACCC’s Statement of Issues (SOI). TPG has also informed that this SOI is a preliminary view by the ACCC and this does not constitute a final decision by the ACCC. Further, TPG acknowledged the importance of the ACCC process and it is looking forward to work with the ACCC to address its concerns. The final decision of ACCC is expected to be announced on 28 March 2019.

The merger is planned to be implemented through a TPG Scheme of Arrangement, with the new merged group (“TPG Telecom Limited”) listed on the ASX. After the merger, TPG shareholders will be having 49.9 percent shares of the merged group and remaining will be owned by VHA. Major shareholders of both the companies are committed to the long-term value creation opportunities available to the combined group and both the companies have agreed to a 24-month escrow period in relation to their shareholding in the Merged Group.

In the last six months, the share price of TPM’s increased by 42.54 percent as on 12 December 2018 and traded at a PE ratio of 18.080x. TPM’s shares traded at $6.45 with a market capitalization of circa $7.18 billion as on 13 December 2018 (AEST 1:10 PM).


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