Is TPG Telecom Ltd set to shirtfront Amcom Telecommunications Limited?

The gloves are off in the battle for market share between Vocus Communications Limited (ASX:VOC), M2 Group Ltd (ASX:MTU) and iiNet Limited (ASX:IIN).

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A trio of mid-cap ASX telcos are in the news again today after it was revealed that internet services provider TPG Telecom Ltd (ASX: TPM) has lifted its stake in rival Amcom Telecommunications Limited (ASX: AMM) to 18.6% in an attempt to block its proposed merger with Vocus Communications Limited (ASX: VOC).

TPG has revealed that it has deliberately lifted its stake in order to vote down the fibre-optic marriage of Vocus and Amcom. The Vocus and Amcom scheme of arrangement reportedly requires 75% of votes able to be cast committed in favour for the scheme. However, with Vocus unable to vote on its 10% holding it would appear nearly dead in the water for now given the new size of TPG’s blocking holding. Unless of course TPG’s position changes voluntarily, or via regulatory intervention.

TPG owner David Teoh is probably keen to block the deal as the prospect of two rivals merging is clearly a threat to TPG’s competitive position. Even more so when you consider that two of its other main rivals in the mid-cap telco space iiNet Limited (ASX: IIN) and M2 Group Ltd (ASX: MTU) are potentially merging themselves, unless TPG improves its offer for iiNet.

Mergers within specific sectors like the ferociously competitive mid-cap telco space have tangible values through synergies like shared services and cost savings, but they also have intangible values in boosting your scale and all important competitive position.

If the AFL’s Sydney Swans were to merge with the Western Bulldogs they would have a stronger combined team to beat the competition and could lose a few coaches and dud players to save on costs. However, it’s the benefit of not having to play each other ever again that is more intangible in terms of supporting their long-term prospects versus their league rivals.

That’s why TPG’s David Teoh is using old-fashioned shirtfront tactics to block the deal, with Vocus and Amcom’s best hope the referee in the form of the Australian Competition & Consumer Commission, who have already been appealed to.

Amcom shares are off around 14% in trade today and this story looks like it has a few more twists and turns yet.

Smart investors don’t go looking for stocks that may or may not benefit from some takeover arbitrage or intangible benefits, they go shopping for gangbusters growth stocks on attractive valuations….

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Motley Fool contributor Tom Richardson owns shares of Amcom Telecommunications Ltd., M2 Group Ltd, and Vocus Communications Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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