M2 CEO: People Telecom buy to build strong Sydney hub

M2 looking to build a Sydney presence with PT acquisition, and insists it won't try to fix something that isn't broken

M2 Managing Director/CEO, Vaughan Bowen

M2 Managing Director/CEO, Vaughan Bowen

M2 Telecommunications [ASX: MTU] sees its acquisition of People Telecom (PT) [ASX: PEO) as an opportunity to build a strong Sydney presence, and will not be absorbing PT’s customers with a view to winding the business down.

According to an ASX statement, M2 will acquire 100 per cent of People Telecom at 0.0916 M2 shares for every 1 People share, $0.6886 in cash for every 1 People share, and up to $0.344 per People share, payable in either M2 shares or cash (at M2’s election).

People Telecom chairman, Barry Hamilton, said the People board was satisfied with the agreement and that it represented the most effective means for People shareholders to realise maximum value.

M2 CEO, Vaughan Bowen, said the company had every intention of growing PT’s brand and business, as he claimed it had a strong presence in the medium-enterprise market.

M2 is well established in the smaller enterprise and SOHO market.

“We believe it’s a fairly sensible brand complement,” he said.

Bowen expects some integration challenges, but said M2 was not looking to integrate the company entirely.

“The People Telecom business is operating well unto itself, we’re not looking to fix something that isn’t broken,” he said.

“We’re not envisaging consolidation personnel wise. We’re not seeing this as a customer-based bolt-on where the business gets wound down and the customers absorbed.”

People Telecom is primarily Sydney-based, with M2 viewing the acquisition as a chance to build a strong Sydney hub.

“They have some terrific people, be it customer service, account managers or technology people. They have 100 staff or so, and the business is performing well under that team so whilst there will be corporate efficiencies we’re not looking at a big consolidation,” Bowen said.

M2 is predicting an increase in earnings per M2 share of more than 15 per cent, which Bowen said translated in dollar terms to about an additional $4 million in after tax profits. Other efficiencies related to the elimination of a public company, including the consolidation of boards, corporate costs, audit costs and ASX listing costs will also boost revenues.

“They total in the millions, so all of those costs fall away and the combined businesses has got $250 million worth of buying power, so obviously some stronger leverage to negotiate with suppliers and hopefully a better, bulkier business for what might be a less certain economic time ahead,” he said.

The deal came about after a relationship between the two companies that started early this year, with M2 wholesaling Optus mobile services to People Telecom.

“Through that process we got to know the management, got to understand the business a bit mor. We’ve obviously watched it over the years because we’ve often been compared as two young-listed telcos,” Bowen said.

Acquisition talks began around three months ago between boards, resulting in agreement that the two businesses were better off together than apart.

“So by way of Scheme of Arrangement we will acquire 100 per cent of People Telecom shares, the PT business will then be de-listed and become a subsidiary of M2,” Bowen said.

“We think we’ve done well with this acquisition, and I hope it turns out like we think it will.”

M2 acquired Commander’s wholesale network services subsidiary in February, and posted total revenue growth of 149 per cent in the last financial year, largely due to strong wholesale revenue.

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