The fibre-optic future of Australia's internet network has taken some twists and turns recently as three key players on the scene make strategic moves designed to support their market positions.
It's worth paying attention to these three businesses as they sit in the middle of servicing two of the mega-trends of tomorrow. The explosion in demand for internet data fuelled partly by the growth in mobile devices, and the shift to cloud computing which relies upon high-performing fibre networks to service it.
With the core products to service this exponentially growing demand it's no wonder these businesses have been three of the ASX's best performers over the past few years.
Let's take a look at each one and what might be behind their recent strategic moves.
Vocus Communications Limited (ASX: VOC)
Vocus recently declared that it had increased its stake in rival fibre-optic internet business Amcom Telecommunications Limited (ASX: AMM) to 10% and also announced it wanted to merge with Amcom.
Vocus in announcing its intention to cement a merger stated that the two businesses assets and operations are complementary and combined would create a national player able to effectively compete with bigger rivals.
Since the announcement of Vocus' offer on October 27, Amcom's shares have jumped around 20%-25% indicating the market expects Vocus to pay a premium which would value Amcom at around $2.55 (or more) per share. To fund the deal Vocus would offer scrip in exchange for shares in Amcom.
Amcom Telecommunications Limited (ASX: AMM)
Amcom's board can agree to Vocus' overtures if it considers the deal is in the best interest of shareholders, or it can play hard to get if it believes it may receive a better offer from a rival.
Alternatively it could choose to create the best shareholder value by continuing to build its business alone. This possibility was evidenced by its recent acquisition of $15 million worth of fibre assets situated mainly around Australia's east coast from rival operator MegaPort.
Amcom has traditionally been a strong operator in Australia's west but the fact that it is now acting on its plans to head east and compete may strengthen Vocus' resolve to bring the businesses together.
TPG Telecom Ltd (ASX: TPM)
The third point in this fibre-optic love triangle is the big-hitting TPG Telecom which yesterday announced it had lifted its stake in Amcom to more than 5% just as Vocus was making its move on Amcom.
TPG stated that there is no specific intention behind the share buying other than as a strategic investment, although the timing does seem an unfortunate coincidence for Vocus.
It's possible to speculate that TPG's chief executive might not be keen on a hook-up between Vocus and Amcom and has decided to buy up shares in an attempt to lessen the possibility of it happening.
Alternatively TPG may in fact decide to make an offer to buy Amcom itself one day, with the prospect of a bidding war perhaps unavoidable if Vocus remains committed. Moreover, if Vocus is now forced to raise its bid for Amcom, TPG would make a substantial short-term profit as a handy consolation in return for facing a more powerful combined rival.
Amcom's shares have dropped more than 5% today to $2.37, although it seems premature to rule out an Amcom and Vocus merger just yet, with investors hedging their bets until further news.
Whatever the final outcome it's clear these three businesses have bright outlooks based on the big trends of the future.
