TPG and Vodafone talk merger

TPG Telecom shares have surged to their highest level in almost two years after it confirmed rumours it was in talks with Vodafone Hutchison Australia about a merger.

And shares in Australia’s biggest carrier, Telstra, have also spiked on the prospect it will have one less competitor.

TPG issued a brief letter to the stock exchange yesterday saying it and Vodafone had discussed a “merger of equals”.

“The TPG board notes that there is no certainty that any transaction will eventuate or what the terms of a transaction would be,” the statement said.

Despite the cautionary note, shares in the junior telco rallied 21.6 per cent, or $1.36, to $7.65, their highest level since October 2016.

The surge added about $1.25 billion to TPG’s market value. Telstra shares jumped 7.2 per cent, or 22c, to $3.27.

Fourth-ranked TPG, which provides broadband services under its own name as well the iiNet and Internode brands, is spending $1.9 billion building a fourth mobile network for Australia. Vodafone is Australia’s third-biggest player by subscriber numbers after Telstra and Optus.

TPG reported a fall in profit at its first-half results in March as subscriber numbers fell.

Telco sector players have had their margins pressured by the National Broadband Network rollout and intensifying competition in the broadband and mobile market.

Industry analyst Paul Budde said a merger was a rational business decision. Vodafone would boost subscriber numbers in a highly competitive market and TPG could save on the high costs of building its mobile network.

“Telstra and Optus will be delighted with this as competition will now be less severe,” Mr Budde said in a report.

Vodafone Hutchison Australia is jointly owned by Britain’s Vodafone and listed group Hutchison Telecommunications Australia, majority owned by Hong Kong-based Hutchison Whampoa.