It’s open warfare in Australia’s telco sector

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Mid tier Australian telcos are in a pitched, and public, battle to win the right to form the third largest player in the Australian market.

The action in the market today has been extraordinary.

Currently in play are two Perth-based companies, Amcom and iiNet. A mid tier telco combining with either would create a credible third place behind Telstra and Bigpond.

Today, shares in Amcom, once an attractive buy and takeover target, went into free fall after TPG Telecom effectively blocked a deal put together by Vocus.

Investors saw the merger as a failure and sold down. Amcom shares were trading more than 14% lower at $2.30. Vocus shares were down 2.3% to $5.83.

The original merger deal with Vocus would have seen Amcom shareholders owning 51.6% of a combined group with a market cap of about $1 billion.

However, TPG Telecom raided the Amcom share register overnight, gaining a further 10% to add to its holding of 8.6%. Market analysts say TPG picked up the 10%, via Macquarie Capital, at a premium of about 2% to yesterday’s close of $2.70.

In a statement to the market, TPG says it intends to vote its shares against the Vocus and Amcom deal. “TPG supports the continued operation of Amcom as a standalone business under the stewardship of the current board of directors and management team,” the company said.

Vocus, which says it will continue to pursue the merger, will refer the TPG development to the Australian Competition and Consumer Commission (ACCC).

Amcom Chairman Tony Grist questioned why TPG would want to disrupt a transaction without making a counter offer.

“It would be disappointing to see a transaction which has received strong support from our 8,000 shareholders blocked by a minority shareholder who is acting in their own interest,” Grist said. “We would of course be happy to talk to TPG to discuss their intentions.”

In an unconnected telco play, TPG itself is facing competition in its $1.4 billion cash bid to buy iiNet. The deal would give TPG Telecom 1.7 million customers and revenue of $2.3 billion.

Challenging TPG for iiNet is the the M2 Group which is offering $1.6 billion in shares but no cash.

The iiNet board, which is still officially supporting the TPG bid, has triggered a matching bid clause in the TPG deal. TPG has working three days to make a revised offer.

TPG shares were trading 1.6% lower at $8.86. M2 was slightly firmer, up 0.18% to $11.09.

iiNet, the takeover target, was trading 1.44% lower at $9.90 but still higher than in February when it was trading as low as $6.12.