Vocus to pay A$5.25 billion for TPG's enterprise and fibre assets

The pair have finally hammered out an agreement after dancing around one another for the past year or so. Eagle-eyed telecoms watchers will notice that this deal is valued at around A$1 billion less than the last transaction the telcos were working towards, but it's worth noting that the parameters are slightly different, which in part explains the slide.

We knew that a deal was in the pipeline; the operators disclosed in August that they had entered non-exclusive talks as part of TPG's ongoing strategic review into the future of its fixed infrastructure assets. But noone was counting any chickens back then, Vocus and TPG having been there before.

They announced talks in August 2023 over a deal valued at A$6.3 billion, but were unable to sign off on the finer details before the time ran out on their exclusivity arrangement, eventually calling the whole thing to a halt last November.

Doubtless keen to explain away the lower valuation this time around, TPG insists that this is a different deal.

"The transaction reflects a smaller asset perimeter compared with the original discussions with Vocus in 2023, resulting in a simpler operating model than was envisaged in the original discussions," said TPG Telecom CEO Iñaki Berroeta, in a statement. "The deal unlocks the value of our fixed infrastructure assets while strengthening our financial position and creating a more focused and streamlined business with significant optionality for the optimisation of our capital structure."

TPG said it will sell its fibre network infrastructure assets, plus its Enterprise, Government and Wholesale (EGW) fixed business, including fixed broadband wholesaler and NBN rival Vision Network, to Vocus for the aforementioned A$5.25 billion sum, which includes a potential A$250 million contingent value payment linked to Vision Network meeting certain customer targets between two and four years after closing.

The parameters of that deal seem remarkably similar to the one that fell apart last year. While Berroeta is doubtless correct that the borders of the deal are in fact different, we have to question whether there is really A$1 billion worth of difference there.

Either way, the companies have aligned their expectations and are shooting for a completion date in the second half of 2025, subject to the satisfaction of various conditions and receipt of regulatory approvals.

Naturally, there are positives for both parties. Vocus is essentially looking at greater scale.

"This agreement is transformative for Vocus and is an important step towards creating a more competitive landscape for the Australian telecommunications industry," said Jarrod Nink, Vocus's interim CEO.

"Investment and competition in our industry is critical for Australia's future and the combined strengths and resources of Vocus and TPG in the EG&W sector will create immediate and lasting benefits for our customers, employees and shareholders," he said.

For its part, TPG is bringing in some cash and a new focus for its business.

It expects to receive net cash proceeds of A$4.65 billion-A$4.75 billion, which it will use to, in its words, "support future capital management and business investment initiatives." It has not yet determined exactly what those initiatives will be, but will provide an update around the time of completion.

At that point, TPG will be able to narrow its focus and compete more effectively in the mobile space and in consumer broadband. It will retain its mobile radio network infrastructure, Consumer and EG&W mobile business, and its Consumer and small office/home office commercial fixed business, it confirmed. The deal will also see Vocus supply fixed network services to TPG.

"We look forward to a long-term partnership with Vocus that will support TPG Telecom's ambition to be Australia’s best telco," Berroeta said. "We are committed to working as efficiently as possible with Vocus and regulators to bring the Transaction to completion and providing the smoothest possible transition for our Enterprise, Government and Wholesale fixed customers and the approximately 560 TPG people who will transition to Vocus."

Essentially, TPG is considering its competitive position against bigger players Telstra and Optus. And now we play the waiting game to see whether the various regulatory authorities agree that this deal will be positive – or at least not negative – for Australia.