Investors shouldn't read too much into early media reports of a proposed merger between TPG and Vodafone just yet, says Morningstar's Brian Han.

TPG today revealed it has held exploratory discussions with Vodafone regarding a "merger of equals" between the competing companies, in a statement to the ASX. Though it noted "there is no certainty that any transaction will eventuate or what the terms would be".

There has been speculation about a merger between the two companies for a few years, according to Morningstar equity analyst Brian Han.

"And that's what this is now - it is still only speculation. We're not reading too much into it at this point, even though TPG's share price has moved a little."

TPG's share price was up 52 cents, or 8.3 per cent, to $6.81 at time of publication – its highest level since January, 2017.

vodafone telecommunications telco

Vodafone ranks third in Australian, when measured on subscriber numbers

The fourth-ranked Australian telco in terms of market capitalisation, TPG ranks second when measured on broadband subscriber numbers. It provides services for the latter under its own name as well as iiNet and Internode brands.

Vodafone is Australia's third-biggest player by subscriber numbers, after Telstra and Optus.
TPG recorded a fall in profit at its first-half results in March as subscriber numbers fell.

The telco this year became the fourth Australian mobile network provider, spending $1.9 billion on the roll-out so far.

Telco sector players have had their margins pressured by the rollout of the National Broadband Network and competition in the Australian broadband and mobile market has been intensifying as incumbents deal with challengers - such as TPG - and the NBN impact.

Industry commentator Paul Budde believe Vodafone would gain a substantial boost to subscribers if a merger did proceed, just as TPG could extract considerable cost savings on the ongoing build of its mobile network.

While it would be a "win-win" for both companies, other competitors Telstra and Optus could also benefit from the reduced price competition of one less standalone player, Budde says.

Shares in Hutchison Telecommunications Australia - the thinly traded ASX-listed joint venture partner with Vodafone - were also higher - up 0.4 cents, or 6.7 per cent, to 6.4 cents.

 

Glenn Freeman is senior editor, Morningstar Australia

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