Synergies from the combined group are expected to drive an uplift in EBITDA to 20%.

For Domain and Hosting supremo Webcentral Group (ASX:WCG), the outlook has strengthened considerably since its acquisition by 5G Networks (ASX:5GN) last year.

Along with a sharp lift in core earnings, shares in WCG have consolidated higher as investors assessed the capacity for both companies to generate synergies across their network.

And this morning, the group flagged the next step in its evolution with a marquee merger announcement.

Merger terms

Webcentral and 5G Networks announced they will enter into a Merger Implementation Agreement to create a merged entity by way of a scheme of arrangement.

Under the terms of the scheme, Webcentral will acquire 100% of the fully paid ordinary shares in 5GN.

The proposed merger has been recommended by independent board committees for both companies.

In addition, 5GN directors intend to vote in favour of the arrangements, pending final approval from an Independent Expert that the deal is in the best interests of 5GN shareholders.

Under the proposal, 5GN shareholders will receive two WCG shares for every one 5GN share they hold, at a nil merger premium.

The deal is consistent with the volume weighted average price of shares in both companies across a five-day and 30-day time period.

 

Merger rationale

The move was flagged as the next step to drive synergies and create value through the establishment of a larger combined entity.

On the revenue side, WCG said the merged group will allow for an “acceleration of cross-sell and up-sell opportunities to complementary customer bases” across a larger addressable market.

WCG brings an existing customer base of more than 330,000 business clients, for who 5GN will be provided with more streamlined access to drive sales of its data network and cloud services platform.

In addition, the group expects to generate cost synergies of more than $2m from consolidating its operating platform and cutting staff costs.

Those costs savings together with increased revenue upside is expected to flow through to a positive uplift in EBITDA of more than 20%, WCG said.

 

Next steps

The companies advised that 5GN shareholders don’t have to take any action at this stage.

Details of the proposal, including the strategic rational and directors’ recommendations, will be sent to 5GN shareholders by the end of the September quarter.

Along with the Independent Expert report, the deal is subject to court approval as well as shareholder approval from both companies.

This article was developed in collaboration with WebCentral Group, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.