Are Pipe Networks and SP Telemedia set to do a deal?

Speculation is growing that two of Australia’s hottest junior telcos are set to unveil some sort of merger or takeover deal, after SP Telemedia and Pipe Networks both entered trading halts yesterday.

Pipe Networks said in a statement to the ASX that the trading halt was “in connection with a proposal received by PWK which the company needs to review and give full consideration”.

SP Telemedia said in a statement that it was in negotiations about a “material transaction”.

The two companies have enjoyed strong investor support in the last 12 months.

Shares in Pipe Network, which specialises in operating its own fibre optic cable network (including an undersea cable linking Australia with the rest of the world), have risen from $2.70 to $6 in the last 12 months.

That has helped boost the fortune of the founders Bevan Slattery and Stephen Baxter to around $48 million each.

SP Telemedia’s rise has been even more spectacular. Its shares have risen more than 10-fold from 11c to $1.30 in the last 12 months. The shares have more than doubled in the last three months.

The rise has been driven by the company’s reverse takeover by voice and internet service provider TPG, which was majority-owned by founder David Teoh.

The strong run-up in SP Telemedia shares (the company will soon change its name to TPG Telecom) has helped boost the value of Teoh’s stake to over $273 million. That would easily put him in the BRW Rich 200 next year.

While Pipe’s decision to build a $180 million undersea cable from Sydney to Guam was a huge risk for the company, it appears almost certain to become an increasingly sought-after asset in the telecommunications sector.

Pipe Networks recently announced an upgrade to its 2009-10 profit forecast from $20.5-21.5 million to $23-25 million, with an extra $1 million coming directly from high revenue and cost savings associated with the undersea cable.