TLSCD Telstra Corporation Ltd

   By Robb M. Stewart 
 

MELBOURNE, Australia--Australian telecommunications company TPG Telecom Ltd. (TPM.AU) has struck a deal to combine with rival Vodafone Hutchison Australia in an effort to build a bigger challenger to the country's two big incumbent operators.

The tie-up will create a company with an enterprise value of about 15 billion Australian dollars (US$10.97 billion), bringing together TPG's more than 1.9 million fixed-line residential subscribers and Vodafone Hutchison's roughly 6 million mobile-service subscribers.

Each of Australia's telecom operators has struggled in recent years with intense competition that has been heightened as the federal government rolls out its nationwide broadband network, which sells capacity to the operators that in turn sell broadband services to consumers. TPG, which had plans to roll out a competitively priced mobile telecom network to challenge the country's three incumbents, last week admitted to exploratory discussions with Vodafone Hutchison regarding a potential deal.

The Australian market is characterized by the presence of Telstra Corp. (TLS.AU) and Singapore Telecommunications Ltd.-owned (Z74.SG) Optus, said Inaki Berroeta, chief executive of Vodafone Hutchison.

"Together, TPG and VHA will provide stronger competition in the market and greater choice for Australian consumers and enterprises across fixed broadband and mobile," Mr. Berroeta said.

Billed as a merger of equals, the combined company will be 50.1% owned by Vodafone Hutchison, a 50-50 venture between the U.K.'s Vodafone Group PLC (VOD.LN) and an Australian company controlled by Hong Kong's CK Hutchison Holdings Ltd. The remainder will be held by TPG's shareholders.

The new company will still be known as TPG Telecom and listed on the Australian Securities Exchange. TPG and Vodafone Hutchison said they anticipate substantial cost savings through their tie up as well as revenue synergies from cross-selling products across their respective corporate and consumer customer bases.

David Teoh, currently chief executive and chairman of TPG, will be chairman of the combined company and Mr. Berroeta will be the managing director and CEO.

"The characteristics that have made TPG what it is today...will be magnified through this combination," Mr. Teoh said. "Together we will become a more effective industry challenger that strives to create competitively-priced consumer products."

The National Broadband Network has become the core of TPG's main fixed-line business, and it has spent about A$1.26 billion to buy unallocated mobile bandwidth used in current fourth-generation networks that it had aimed to use for a rival fourth network in Australia. Since it was founded in 1986 as Total Peripherals Group, TPG has expanded rapidly and picked up a number of rivals, including broadband provider iiNet in 2015. It now offers a range of services to retail and business customers.

In parallel with the merger plans, the two companies said they would jointly bid capacity in the upcoming government auction of the 3.6 Gigahertz spectrum that will be used for so-called 5G networks.

TPG also said it would spin off to its shareholders its mobile business in Singapore, and the new merged company would later seek to agree commercial services agreements with the unit.

The company said they expect the deal to be complete next year.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 29, 2018 19:14 ET (23:14 GMT)

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