M2 announces friendly takeover of People Telecom

Stan Beer
Friday, 05 December 2008 06:31

IT Industry - Deals

Junior telco M2 Telecommunications Group (ASX: MTU) and struggling broadband provider People Telecom (ASX: PEO) have announced a friendly merger, which will see M2 acquire all of the smaller company's shares.

The acquisition, scheduled to be completed by April 2009, will result in M2 buying 100% of People Telecom's shares under a Scheme of Arrangement.
 
Under the Scheme, People shareholders will receive the following consideration:

•    0.0916 MTU shares for every 1 PEO share;

•    0.6886 cents in cash for every 1 PEO share; and

•    up to 0.344 cents per PEO share, depending on how much net cash People has in the bank at the time the deal is consumated
 
The transaction, as proposed, values each People share between a minimum of 5.46 cents and a maximum of 5.81 cents, based on M2’s share price, a considerable premium to the current PEO share price of 4.5 cents at the time of writing. However, the acquisition announcement has had only a marginal effect on the market for PEO shares which were still trading thinly today.

Commenting on the proposed acquisition, Vaughan Bowen, Managing Director/CEO of M2, said:
“We are pleased to have reached agreement with the People Telecom Board to acquire People Telecom.

“Bringing People into the M2 Group is both strategic and logical, in that it adds considerable additional scale to the combined group together with complementary capabilities and marketing channels. The addition of People to M2’s strongly growing customer base is expected to increase group revenues to greater than $250M on an annualised basis and is expected to considerably increase consolidated earnings and earnings per share,” said Bowen.

People Telecom Chairman, Barry Hamilton, said of the transaction: “The People Board is most satisfied to have reached unanimous agreement to proceed with the acquisition by M2.
 
“We believe that this transaction represents the most effective means by which People shareholders can realise maximum value, both in terms of the consideration being at a substantial premium to People’s recent share price performance and in terms of People shareholders receiving a sizable number of shares in M2, which has a proven track record of strong growth, consistently increasing profitability and dividend payments,” said Mr Hamilton.