Soul Pattinson Telemedia (SPT), better known by its brand Soul, has announced its proposal to merge with the private Australian ISP company TPG, in an effort to gain more customers.
SP Telemedia's shareholders will be asked to vote on the proposed merger when they come together at a general meeting set down for April. If the merger goes ahead, the combined company will create a major telco market.
As recently as December last year the telco was reported to be up for sale itself after struggling to gain customers in an increasingly competitive market. The planned merger with the well-established, privately owned TPG which has over 200,000 broadband customers, and its own network including 238 DSLAMs, and delivers dial-up, ADSL and ADSL2+ services, will go along way to delivering the customer base and increased services SPT wants.
The merger will occur through the acquisition by the Newcastle-based telco SP Telemedia of TPG Holdings at a price of $150 million in cash, to be funded through debt, plus 270 million of SP Telemedia shares. David Teoh, TPG's CEO and founder will become the executive chairman of SP Telemedia should shareholders agree to the merger.
According to Paul Brooks founder of Layer 10 Consulting, "The integration of the external philosophies will be interesting as both companies market themselves quite differently."
Soul's brand is towards the consumer market, whereas its parent company SPT has contracts with the NSW government networks (See NSW awards broadband contract to SPT ). Soul also has mobile phone services which TPG doesn't, whereas Soul has turned to TPG for more customers.
"It is two large organisations which is surprising," he said. "It is common for some smaller guys to be swallowed up, but both of the organisations could be considered buyers in the market."
Brooks notes that the residential Internet space is difficult to service and to keep people's loyalty. "If they spot a cheaper deal for a buck or if they get greater downloads, then they will move."
He believes that the biggest challenge will be in restructuring the plans to keep the new merged customer base satisfied.
"Creating a merged brand, and how they choose what will be the ongoing brand, and keeping the customer base are the challenges," he said, noting Soul has put a lot of effort into its branding, and TPG has traditionally attracted large numbers of customers offering low priced plans.
"Will Soul be happy to accept smaller margins for that customer base? A lot of it will be about marketing and the attractiveness of the plans. In the residential and consumer space this is a critical aspect."
"The biggest reconcile is in the brand and the customer base."