TPG can afford to do it because they are within their debt covenants, and its the only way the merger can get done.
Teoh will be Chairman of the Baord, CEO will be Inaki Berroeta, that represents the biggest concern for the merged entity in my mind.
(the following are my personal opinion as an outsider, i might be wrong)
Teoh is famously a cheapskate that cuts any corner, and celebrated for it by shareholders, e.g. they havent even integrated iiNet with TPG properly yet i think they still have seperate billing systems (and iiNet uses Optus network, TPG Vodafone). Teoh is a mastermind, he puts himself where he needs to be to make the most of opportunities, but he doesnt see what it is costing him, i.e trust.
Berroeta's style strikes me as pretty much the opposite of Teoh, a lot more up-market, more focused on presentation than TPG has been, meaning well, having a good plan, but not so good at execution.
The combined entity is heading for a huge clash of cultures, will TPM starts being operating like a normal company, or will it keep operating on the cheap, i dont think anyone can keep costs down like Teoh did, so TPM costs will increase, and profit will fall.
TPM had $175m NPAT in FY19, Vodafone had $160m loss for last half ($320m annualized), so the combined entity is starting in the red with a combined NPAT of negative $145m.
They will have $4b debt, EBITDA of $1.4b (if i worked it out properly from latest numbers) which gives it a Debt/EBITDA of 2.8x, higher than the merger documents suggested, its pretty high, about the level of Vocus where it has been a concern.
TPM numbers have been holding steady, only declining slightly, but if you look at their subscriber numbers, they havent been able to increase mobile customers even when they tried, and fixed line have been declining under NBN, so its hard to see them growing. I dont see the combined entity increasing its market share.
They need to quickly find 'synergies' between the companies, which might be difficult as they have been working together pretty closely for some time (eg on fibre), they could potentially reduce costs at Vodafone, but the person in charge is the one who isnt famous for reducing costs.
Count the days till Teoh seizes control of the merged entity, what chances does Berroeta have when he is taking over from someone who has been keeping all his business plans in his head, or on napkins for years.
At that starting point, they need to fund their 5G deployment and carry the high depreciation rate of such equipment, and compete with stronger competitors.
I think the merger is a bit of a booby-prize, TPG-VHA wil have internal managment difficulties, and financial problems to overcome for quite some time.
Expand
(20min delay)
