Michael Bleby Reporter

Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

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Vaughan Bowen’s M2 buys Kestleman’s Dodo, Eftel

Published 18 March 2013 11:35, Updated 19 March 2013 10:51

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Vaughan Bowen’s M2 buys Kestleman’s Dodo, Eftel

Vaughan Bowen’s M2 was the first wholesaler connected to the NBN and in July 2011 connected its first residential customer to the network. Photo: Arsineh Houspian

BRW Young Rich lister Vaughan Bowen has snapped up the empire of former list member Larry Kestleman with the $248 million acquisition by M2 Telecommunications of Kestleman companies Dodo Australia and Eftel.

Bowen, whose $50 million fortune came with the growth of M2 into Australia’s fifth-biggest telecommunications provider, gains access to low-cost brand Dodo’s 400,000 customers for home broadband, mobile and home phone services, as well as for power and gas and insurance in a deal that values the privately held company at $203.9 million.

M2 also boosts its exposure to corporate and government clients with the $44.1 million purchase of ASX-listed Eftel, which owns the aaNet, ClubTelco and engin brands. Eftel, placed in a trading halt on Friday after an almost 44 per cent gain on Thursday, last month reported its after-tax loss for the six months to February narrowed to $46,000 from $3.1 million.

The acquisitions, which M2 will fund through capital raising and the issue of new debt, seeks to position itself as a stronger challenger in the market for small and medium-sized businesses with a wider range of services to as the National Broadband Network rolls out. M2 was the first wholesaler connected to the NBN and in July 2011 connected its first residential customer to the network in Armidale, NSW.

Dodo is fully owned by Kestleman and co-founder Michael Slepoy. The two also own about 78 per cent of Eftel, Eftel’s chief executive Scott Stavretis said on Monday. They will collectively own just under 10 per cent of M2 after the capital raising, Stavretis said. Serious discussions to buy the two companies commenced late last year, said Stavretis, who joined Eftel in April 2011 from Dodo.

Stavretis said there was no talk of Kestleman or Slepoy being on the M2 board.

Dodo co-founders Larry Kestleman (pictured) and Michael Slepoy aren’t expected to join the M2 board.Photo: Jessica Shapiro

“There’s no formal role,” he said. “From what I understand they will be major shareholders of M2.”

M2, which began in 1992 as a voice-messaging business, has grown through acquisitions. It owns the Commander brand and last year bought Primus Telecom. In the six months to December it reported a 46 per cent increase in after-tax profit to $24.3 million.

Stavretis said it was good for Eftel to be part of a larger group, though he did not know what role he himself would play, once the takeover process, which will take three months, was complete.

“It’s very early days yet,” he said. “First we need to get through the approval process.”

Bowen, who has sold down his earlier large stake, now owns just under 4 per cent of M2 shares.