TPG rockets on merger talk
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TPG Telecom's share price soared 22% today after the company confirmed it was in discussions with Vodafone Hutchinson Australia (VHA) regarding a ‘merger of equals'. The modesty of TPG's market release fooled no one; this is a big deal, which is why the share price reacted so violently.
A merger would create a substantially stronger business. Combining the two businesses immediately creates a competitor that can bundle services successfully and raise average revenue per user (ARPU) while lowering churn.
It also puts Vodafone's improved mobile network into the hands of TPG where expansion plans can be pursued faster and for less cash.
As TPG itself points out, no deal has been announced and one may never be. No doubt there will be more news to come, though, and we will provide updates as needed.
Today's move rockets TPG well past our Buy price and, after spending almost 18 months on our Buy list, we now downgrade to HOLD.
Note: The Intelligent Investor Equity Growth Portfolio owns shares in TPG Telecom.
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