TPG shares soar 5.9% as $15bn merger court case looms
Here’s everything you need to know about the hotly debated, and currently stalled, $15bn TPG-Vodafone merger.
TPG share price – the last 12-months at a glance
The TPG Telecom Ltd (ASX: TPM) share price has faced a volatile 12-months, following an announced and subsequently rejected merger with Vodafone.
TPG first announced plans to merge with Vodafone last August. The combined value of the merged company would exceed A$15bn.
As TPG argued in its initial media release, the:
‘Merger will provide scale and financial strength to compete more effectively with Telstra and Optus, and be better able to invest and drive innovation, service and product improvement to benefit Australian telecommunications customer.’
ACCC weighs in
In response to TPG's proposal, the Australian Competition and Consumer Commission (ACCC) blocked the merger, citing reduced competition in the mobile space as a key concern.
The TPG Telecom Ltd share price fell sharply in response to the ACCC’s block and has traded flatly ever since.
At the time – Rod Sims – Chair of the ACCC, argued that:
‘TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services.’
Mind you, TPG ceased building its own mobile network after the Australian government banned the use of Huawei telecommunications equipment.
Unsurprisingly, last week, when TPG Telecom revealed its FY19 results, the impact of these interwoven events became clear.
For example, while TPG’s revenue was just a shade lower than it was in FY18, coming in at A$2,477m – the telco’s profits crashed.
Here, TPG reported FY19 earnings (NPAT) of A$173.8m – some 56% lower than the previous corresponding period – as impairment costs from the halted rollout of its mobile network swelled.
Where to next for TPG?
Though TPG’s FY19 results look underwhelming, the company has been proactive in pushing back against the ACCC’s decision to block its proposed merger.
Shortly after the ACCC’s decision, TPG-Vodaphone announced that they would fight the regulator's decision in Federal Court.
Now, some four months later, court proceedings are set to commence tomorrow in Melbourne to determine whether the A$15bn TPG-Vodafone merger will be allowed to go ahead.
The case will be led by Justice John Middleton; with Michael Hodge, of Hayne Royal Commission fame, set to represent the ACCC.
As the Australian Financial Review aptly pointed out – Justice John Middleton, the man leading the case – will seek to determine a relatively simple question: ‘will the merger be bad for competition in the retail mobile market?’
Final thoughts: TPG share price gets a bump
If today’s share price action is anything to go by – which saw the TPG Telecom Ltd share price surge 5.9% – the market may just believe that TPG has a good shot at winning its federal court case.
Even so, investor sentiment appears significantly more fickle when a broader view is taken. Year-to-date, TPG’s shares have significantly underperformed the broader market, rising just 2% in that period.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets