TPG shares soar 5.9% as $15bn merger court case looms

TPG share price – the last 12-months at a glance

The TPG Telecom Limited (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 Limited 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 Limited 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.

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