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Infratil shares in trading halt after announcing potential Vodafone NZ acquisition

Infratil Ltd (ASX: IFT) shares are in a trading halt this morning after the company announced a potential acquisition of Vodafone New Zealand.

What did Infratil announce?

The company noted “recent media speculation” as it confirmed that it and another party are in discussions with Vodafone Group Plc regarding a transaction involving an acquisition of Vodafone New Zealand.

Infratil said the discussions with Vodafone and financiers are ongoing and incomplete, and may not result in a transaction occurring, with further updates to come as material developments unfold.

What does this mean for the telco sector?

This is the latest announcement regarding a potential transaction in the Australian and New Zealand telecommunications space as low rates and a late-cycle search for growth fuels M&A activity in the sector.

The timing is also interesting as it comes hot on the heels of the ACCC’s rejection of a proposed merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia, represented on the ASX by Hutchinson Telecommunications (Australia) Ltd (ASX: HTA).

While the ACCC is worried about the threat of an even smaller oligopoly in Australian telecommunications, there has also been the recent talk of an Amaysim Australia Ltd (ASX: AYS) and Optus merger as well as the recent QMS Media Ltd (ASX: QMS) and MediaWorks merger.

This consolidation looks like a classic late-cycle search for inorganic growth as management scrambles to find ways to increase share prices amidst lower margins and higher costs driven by the rollout of the NBN across Australia.

What does this mean for the Infratil share price?

As is usually the case in takeovers and acquisitions, the acquiring firm’s shares usually fall lower on the risk that the company may not be able to realise the synergies built into the acquisition price.

For Infratil, I’d expect to see a mild negative reaction once it emerges from its trading halt but I still believe that Telstra Corporation Ltd (ASX: TLS) could be a good buy as it has continued to rebound from its 2018 lows.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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 Scott Phillips.

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