The Australian Competition and Consumer Commission's (ACCC) rejection of a deal between Australia's third and fourth-largest telcos - accidentally uploaded earlier than expected - unravelled the prospect of combining TPG's fibre and Vodafone's mobile networks.
Vodafone mainly runs a mobile phone business in a joint venture with Hutchison Telecommunications (Australia) Ltd, but has struggled with reliability, while TPG largely has an internet business with a low-cost reputation.
The firms said they would contest the decision, but it heaps pressure on the growth plans of both, weighing especially on TPG to resume investment in a mobile network it quit in January.
A deal would stop both from competing in each other's markets, the ACCC had said in December, concluding on Wednesday it would reduce rivalry in the sector as a whole.
It is the largest deal the regulator has blocked for years and could now grind through the courts, much like the ultimately successful tie-up between gambling houses Tabcorp Holdings and Tatts Group in 2017.
The market reaction was a chaotic selldown in the moments after the decision's unexpected release, since both firms need the tie-up to grow, Mathan Somasundaram, Market Portfolio Strategist at stockbroker Blue Ocean Equities in Sydney, said.
"Both of them are really out of plan B," he said. "Vodafone needs a dancing partner and TPG needs scale."
TPG shares dropped as much as 15% and closed at a five-month low, more or less where they were before the deal was agreed, while thinly traded Hutchison stock dropped 28% to its lowest since February.
The firms said they remain committed to the deal and not everyone feels it is doomed.
"There are a number of unknowns and many variable valuation outcomes," Nick Harris, an analyst at Brisbane stockbroker Morgans, wrote in a note to clients after ACCC's decision.
Morgans retains a hold rating on TPG.
'WE WILL DEFINITELY CONTEST'
TPG abandoned building its mobile telephone network in which relied on Huawei equipment after the Chinese telco was banned by Australia on security grounds last year.
The regulator believes TPG may revisit the plan to build the network and that rivalry in the industry depends on it.
"TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services," ACCC Chairman Rod Sims said in a statement.
"TPG has the capability and commercial incentive to resolve the technical and commercial challenges it is facing."
TPG did not mention the network in a statement, which said the merger would improve competition. Vodafone Hutchison Australia said it remains committed to the deal.
The firms agreed to extend the deadline for implementing the merger until August 31, 2020.
"It is extremely difficult for us to understand this decision," Vodafone Hutchison Australia Chief Executive Officer Inaki Berroeta said on a conference call with journalists.
"It looks like the ACCC has created an ideal market structure ... and they are trying to compare that with reality, which I believe is a fallacy," he said. "This is something that we will definitely contest."
The regulator's decision caught traders, analysts and the companies unawares since it was not due to announce its final verdict until Thursday, after twice delaying the decision date.
"This information was inadvertently published online on our mergers register briefly this afternoon," the ACCC said.
The news sent both firms into a tailspin and shares sliding until the market closed 25 minutes later and the regulator published a fuller note explaining its reasons.
Sims told the Australian Broadcasting Corporation it was extremely unfortunate, was caused by a systems error and would be investigated.
This story has been published from a wire agency feed without modifications to the text.