It could well be that the competition watchdog was making a mountain out of a molehill when it flagged reservations about TPG Telecom Ltd’s (ASX: TPM) acquisition of iiNet Limited (ASX: IIN).
The Australian Competition and Consumer Commission (ACCC) is asking for feedback on not only the impact of the $1.6 billion merger on competition but also on customer service levels as well.
The ACCC’s call for more information is triggered by concerns raised from customers during the initial review of the deal and Credit Suisse has weighed in on the debate by declaring that the ACCC is still likely to give the merger its nod of approval.
The concerns raised by the watchdog have really only added volatility to the share prices of both companies with TPG Telecom actually jumping 1.5% on the news yesterday. It almost seems like shareholders haven’t warmed to the deal.
But I don’t think there are enough reasons to believe that the ACCC will block the union given that the industry will remain pretty competitive even with one less player thanks to Telstra Corporation Ltd (ASX: TLS), Optus and M2 Group Ltd (ASX: MTU).
Credit Suisse estimates that the TPG-iiNet group will hold around a 27% market share, second only to Telstra and that the competitive restraint offered by Telstra, M2 Group and Optus will ensure competition will not lessen because of the tie-up.
While these points don’t quite touch on concerns around customer service, there is certainly nothing to suggest that consumers will be worse off.
My colleague Ryan Newman echoed similar thoughts when he wrote about the ACCC’s request for information in detail.
M2 Group has also made a counterbid for iiNet before being upstaged by an improved offer from TPG Telecom. There is speculation that M2 is preparing another go for iiNet but the ACCC’s latest action probably means M2 will not show its hand until the watchdog hands in its final decision on August 20.
I believe TPG Telecom can squeeze more synergies from iiNet than M2 Group because the latter isn’t really an infrastructure company but more of a marketing one.
But as I mentioned before, M2 Group isn’t likely to go quietly without a fight, particularly not when its share price has rallied over 80% in the past year making its scrip a valuable “dowry” as part of its marriage proposal.
Get comfortable. There’s a lot more water yet to flow under this love triangle.
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Motley Fool contributor Brendon Lau owns shares of iiNet Ltd. and M2 Group Ltd. Follow me on Twitter - https://twitter.com/brenlau
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