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Vocus & M2: First thoughts

Vocus & M2: First thoughts

The silence on the Montgomery blog around the Vocus Communications Limited (ASX: VOC) / M2 Group Limited (ASX: MTU) reverse acquisition was rather deafening, but as our funds are shareholders in each entity we had extensive due diligence to complete before any response could be warranted.

For those unaware, Vocus is expected to acquire M2 under a reverse takeover arrangement subject to a shareholder vote in 2016. Vocus has proposed to pay 1.625 Vocus shares for each M2 share and the combined entity (trading as Vocus Communications) will be managed by personnel from each firm.

The benefits of the deal are fairly substantial; $40 million (approx. 4 per cent of the combined cost base) of cost synergies are expected to arise from sharing office space, removal of some administration costs and renegotiation with some suppliers. Much more may be realised in the event that agreements with Telstra Corporation (ASX: TLS) can be renegotiated so as to utilise the Vocus network for backhaul or at least more favourable rates on assets currently utilised.

Revenue synergies are likely although harder to quantify. M2’s salesforce will be able to sell Vocus fibre products to the 250,000 small and medium enterprises around Australia (we estimate this to be a $250 million-$500 million market). We’re also expecting an uptick in the performance of the M2 network through additional bandwidth provided by Vocus which should theoretically translate into lower churn and hence higher subscription growth.

I’ll provide more detail on our thoughts around M2, Vocus and the merger in a video blog next week – stay tuned.

Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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2 Comments

  1. How does your system work. Do I pay for advice or
    Just invest and let you do the work.
    Regards Brian

    • Hi Brian, we are fund managers so we don’t provide any advice as part of a service where you might be seen to be making the decisions. We make the decisions on behalf of our investors. You can find out more by visiting the Montgomery Investment management website at http://www.montinvest.com

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