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Vocus Communications Limited, M2 Group Ltd merger approved by ACCC

Vocus Communication Limited’s (ASX: VOC) proposed merger with M2 Group Ltd (ASX: MTU) has been given the green light by The Australian Competition & Consumer Commission (ACCC) after it announced (PDF) that it will not oppose the merger.

In an increasingly likely outcome, the combined entity will become Australia’s fourth-largest telecommunications company with a market capitalisation of around $3 billion, which could place it inside the S&P/ASX 100.

The strategic rationale behind the merger is apparent – it combines M2 Group’s small consumer orientated business, including Dodo, iPrimus and Commander, with Vocus’ infrastructure and large enterprise customers to create a fully integrated telco. This would help level the playing field with its larger rivals such as TPG Telecom Ltd (ASX: TPM) and Telstra Corporation Ltd (ASX: TLS).

The ACCC noted that “Vocus and M2 have limited overlaps” and “was primarily a merger between two complementary businesses” which “consolidates the fourth player in the market.”

Vocus has been busy acquiring rivals and its “merger of equals” with Amcom Communications was recently completed in July 2015, following some interesting tactics by rival TPG that delayed and almost scuttled the deal.

The issue for shareholders is the timeframe it takes to integrate M2 into Vocus when the Amcom integration has only just begun. Besides the additional complexity, this could extend the timeframe before the expected synergies can be achieved and is a risk to its future financial performance.

M2 Group shareholders are expected to vote on the merger in early 2016.

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Motley Fool contributor Mitch Sonogan owns shares of M2 Group Ltd, Telstra Limited, and Vocus Communications Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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