MENU

Have Amcom Telecommunications Limited & Vocus Communications Limited struck gold?

Fibre-optic internet, data centre and telecommunication businesses Amcom Telecommunications Limited (ASX: AMM) and Vocus Communications Limited (ASX: VOC) yesterday announced they have agreed terms to a $1.1 billion merger of their businesses.

Under the terms of the agreement Amcom shareholders will receive 0.4614 Vocus shares for each Amcom share they hold. This is an implied value of around $2.45 per share based on a Vocus share price of $5.31, although notably Vocus is today trading towards recent 52-week highs of more than $6.

The offer is also not adjusted for Amcom’s FY15 first half dividend which is capped at 5 cents and is subject to shareholder approval in the absence of a superior proposal. Another bidder rumoured to be interested is rival internet business TPG Telecom Ltd  (ASX: TPM).

On completion of the deal Amcom shareholders will effectively hold 51.7% of the combined entity which is good news for those shareholders keen to retain an interest in the future prospects of the combined business. Takeover offers or mergers can often lead to one party offered cash in return for their shares, which leaves them potentially sold short given the future growth prospects of a combined entity. However, in this deal Amcom shareholders will retain an equity holding in the new business.

The two businesses have natural synergies with Perth-based Amcom having a strong presence in the west and Sydney-based Vocus having strength in the east. Their enhanced national scale should improve their all-important competitive positions, and the deal should be earnings and cash flow accretive for the new business in the first financial year following completion.

A combined business would appear to have strong growth prospects given revenue streams are leveraged to the provision of high-speed fibre-optic internet capacity and data centre services. A future of ever-increasing data consumption, IT outsourcing and Cloud services suggests the potential for continued profit growth and share price appreciation.

The market has reacted positively to news of the deal sending shares in both companies up on the news. In particular, Amcom shares have climbed more than 13% to $2.67, which likely reflects the climbing valuation of Vocus and TPG’s rumoured interest.

Oil stocks look like they could be ready for a serious rebound! 

Discover the names and codes of these 3 perfectly positioned energy plays now in The Motley Fool's brand-new FREE report. Simply click here and we'll email you the FREE report right away!

Motley Fool contributor Tom Richardson owns shares in Amcom and Vocus. You can find him on Twitter @tommyr345

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.