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M2 calls on Eftel

M2 Telecommunications Group (ASX: MTU) and Eftel Limited (ASX: EFT) both began today in a trading halt, with M2 agreeing to purchase 100% of Dodo Australia, and making an off-market takeover offer for Eftel at $0.3581 per share. Both acquisitions are expected to cost the company around $250 million.

The Motley Fool considered M2 to be one of the best stocks of 2012 – recognizing a strong business with the potential to get much better. As part of its growth strategy, M2 has largely focused on business acquisitions, adding Primus to its phone-lines for $192 million last year.

Eftel has been in a trading halt since Friday after its shares rose 43.64% in early trading. Eftel was forced to respond to a price query from the ASX, stating that they had been in talks with another party regarding a potential transaction – which this morning proved to be M2.

The company increased revenue by 20% for the half year to 31 December as compared to the same period for 2011, however, investors were disappointed after a net loss of $46,000 was recognised which pushed share prices down almost 15%.

M2, on the other hand, has soared 58% since its acquisition of the Primus and iPrimus brands – recognizing a 64.6% increase in revenue and a 47% increase in net profit for the same period – also increasing its interim dividend by 11.1% to 10c per share.

It is expected that M2 will not require an equity raising to help fund the transaction, with Goldman Sachs (NYSE: GS) having committed debt financing, according to the Australian Financial Review.

Foolish takeaway

Through its acquisitions of strong businesses, M2 is reaching out to more and more customers in Australia and New Zealand. Until now, it seems that they’ve made all the right moves and the market has shown its support. Despite a strong track record of purchases however, investors should be cautious – it may serve the company better to settle with the brands it does have for now and not get too ahead of itself.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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