Shares in Perth-based telco Amcom Telecommunications Limited (ASX: AMM) surged 13% on Monday after the group announced that Vocus Communications Limited (ASX: VOC) had acquired a 10% stake in the business and proposed a merger of the two companies.
$1 billion giant
A merger of Amcom and Vocus would create a company valued at around $1 billion and would be a close third in the national business telecommunications market, behind market leader Telstra and second-ranked Optus.
The companies, which both focus on data, internet services and phone connections for businesses, have a history of successful acquisitions and offer complementary services.
A Sensible Union
The theory in the companies combining is best summed up by Vocus' chief executive James Spenceley who said that: "Amcom are fantastic at delivering data services for businesses on the west coast; we're fantastic at delivering on the east coast."
He added that, "the assets and operations of Vocus and Amcom are highly complementary and the potential combination offers an enhanced growth platform, while creating a truly national player to capitalise on the evolving opportunities in the telecommunications sector."
One Company to Rule Them All
Over time I believe we'll see the emergence of a smaller number of super-sized communication and IT companies in Australia. Smaller players will always have their space in the sector but aggregators such as Amcom and Vocus, which have substantial user bases and hardware networks, will challenge the larger players. Consolidation in the industry will provide opportunity!
Synergies
The synergies between the two companies will theoretically improve group profit and give Amcom some growth opportunities that were not present previously. There will also be substantial cross-selling opportunities between the two sets of customers.
Other IT Ideas?
Could it be that the value's now gone after Amcom's 13% rise today? I'm always on the lookout for undervalued and new IT and telecommunications sector companies as they're usually capital-light and can expand rapidly.
