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Australian telecom Vocus to buy rival M2 Group for $1.3 billion

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Australian telecom Vocus Communications plans to buy rival M2 for $1.3 billion, further consolidating a sector hoping to benefit from a national broadband network and take on Telstra.

In a statement to the Australian Securities Exchange on Monday, the companies said M2's board agreed to the offer of 1.625 Vocus shares for every M2 share in a deal that would create Australia's fourth-largest internet provider.

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The deal, announced before the start of trading, represents a 25 percent premium to M2's latest closing price and a reversal of fortunes for the Melbourne-based company after it lost out in a A$1.6 billion ($1.1 billion) bidding war for another rival, iiNet, in May.

While former national carrier Telstra dominates the Australian telecoms and internet market, a host of smaller rivals are jostling for exposure to a government-led A$40 billion national broadband network which aims to bring high speed internet to all Australians by 2020.

"Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced," M2 Chairman Craig Farrow said in the statement.

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The statement said the deal would give the companies a combined annual revenue of about A$1.8 billion and earnings before interest, tax, depreciation and amortization of about A$370 million, not including annual savings of about A$40 million within two years.

The companies said M2 shareholders will receive a scheme booklet in late 2015 and vote on the deal in early 2016.

Vocus was advised by Credit Suisse and M2 was advised by Goldman Sachs, they added.