Merger will create huge Australian telco

SYDNEY – Two Australian companies are merging to create a telecommunications giant. SP Telemedia, the telecommunications company that publicly trades as “Soul,” is merging with the TPG group, for A$150 million (US$134 million) in cash.

Founded in 1986, TPG is an Internet service provider with a significant customer base and network footprint including 200,000 broadband customers. It also has its own network with 238 DSLAMs.

TPG’s founder and CEO David Tech will become executive chairman of SP Telemedia.

The combined companies are expected to achieve revenue of $469 million for the financial year 2008 and $607 million for 2009. It will have one of the largest DSLAM networks in Australia and will be one of Australia’s most profitable telecommunications companies in terms of profit margin.

Moreover, the deal provides plenty of opportunity to increase network traffic, bundle and cross-sell both companies’ products, rationalise rented premises, and reduce personnel and administrative costs. Access to TPG’s DSLAMs will also reduce SP Telemedia’s capital expenditure as its customer base expands.

TPG owns 70.25 per cent of ASX-listed Chariot Limited, an ISP with a market capitalisation of $9 million. Assuming SP Telemedia shareholders approve the acquisition of TPG at a meeting to be held in April, SP Telemedia intends to make a scrip offer for the remaining 29.75 per cent of Chariot at a price to be determined by an independent expert.

An independent expert’s report will be commissioned to report to shareholders on the proposed merger at the shareholders general meeting in April.

Washington H Soul Pattinson, which currently owns 46.3 per cent of SP Telemedia, has advised SP Telemedia that it supports the proposed merger and intends to vote in favour of the transaction, which will dilute its shareholding to 27.7 per cent.

SP Telemedia chairman, Robert Millner, said the merger will provide the new company with extensive network coverage for voice, video and data applications. “We believe that following the merger SP Telemedia will be strongly positioned to participate in any further industry consolidation,” he said.

SP Telemedia delivers video and voice over IP as well as standard WAN data service to 98 per cent of the population. Its broadband network employs over 320 network access points and data collection centres in 66 call collection areas to reach the majority of regional communities across Australia.

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