The TPG Telecom Ltd (ASX: TPM) share price will be on watch this morning after the telco company responded to media speculation regarding a potential merger with one of its rivals.
According to a report in the AFR, the company has appointed adviser Macquarie Capital and law firm Norton Rose to investigate a potential merger with the Vodafone Australia business to create a $10 billion behemoth. Vodafone Australia, which Hutchison Telecommunications (Aus) Ltd (ASX: HTA) has a 50% interest in, is believed to have appointed Bank of America Merrill Lynch and Deutsche Bank as its advisers.
While TPG Telecom has not confirmed who is advising it, it has confirmed that it has engaged in "exploratory discussions with Vodafone Hutchison Australia Pty Ltd (VHA) regarding a potential merger of equals of the two companies."
However, management was quick to warn investors that it is still early days and that there is "no certainty that any transaction will eventuate or what the terms of a transaction would be."
It intends to keep the market informed with developments, in accordance with its continuous disclosure obligations.
In a separate statement, courtesy of The Australian, Vodafone confirmed the discussions. It stated that: "Vodafone confirms it has commenced discussions with TPG in relation to a potential combination of the two highly-complementary companies. At this stage, these are exploratory non-binding discussions, with no commitment from VHA or its shareholders."
With TPG's shares up over 10% since last Thursday and likely to continue that rise today, some investors certainly got lucky buying its shares last week.
What now?
Last month Vodafone Australia announced the addition of almost 300,000 subscribers in the first half of 2018. This brought its total customer numbers to 5.98 million.
I think a merger of the two companies makes a lot of sense and agree with the view that they are highly-complementary companies. Especially given Vodafone's large share of the mobile market and TPG Telecom's equally large share of the home internet market. This could mean that a merger will help both compete with industry giant Telstra Corporation Ltd (ASX: TLS).
But with the discussions only at an early stage, I would suggest investors sit tight for now and wait for further developments.
