Australian company Vocus Communications and local telco M2 are merging - something they say will create the third-largest integrated telco in New Zealand and the fourth biggest in Australia.

M2 New Zealand chief executive Mark Callander said the deal was positive one for New Zealand's telco landscape, and had been in the works for a while.

"We have a goal of connecting one in four kiwi homes so we have challenger brands - that's in our ethos and our DNA, and we believe there's 25 to 30 per cent of the market that will move services to a challenger brand if it can meet their service and price expectations," Callander said. "This deal helps us meet both price and service expectations."

"M2 is constantly looking at opportunities in the market and this is obviously one that has been of strategic interest for a while."

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Earlier in the year, the ASX-listed M2 bought local telco CallPlus, which owned the Orcon, Slingshot and Flip internet brands for $250 million.

The addition of Vocus which operates mainly in data centres and networks, would create a full-service, vertically integrated telco group valued at more than $3.3 billion, according to a statement released to the ASX this morning.

In the statement, it said the group was eligible to sit within the S&P/ASX 100, with M2 chairman Craig Farrow saying the trans-tasman opportunities for the integrated group would be huge.

"M2 and Vocus are an excellent fit, being highly complementary and culturally aligned," Farrow said. "Both have successful track records of creating substantial value for shareholders and, together, we will retain this focus. Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced."

If the deal was approved, M2 shareholders would receive 1.625 Vocus shares for each M2 share they owned. This would value M2 stock at $11.62 per share - 25 per cent more than the stock's closing price on Friday.

M2 and Vocus' boards both supported the proposal and recommended that shareholders vote in favour of the scheme.

"The merger of Vocus and M2 is a compelling opportunity for all shareholders," Vocus chairman David Spence said. "The businesses combine Vocus' telecommunications infrastructure and corporate customer base with M2's demonstrated expertise in the consumer and SME segments. The merger creates the fourth largest vertically integrated telecommunications company in Australia and the third largest in New Zealand."

M2 chief executive Geoff Horth will become chief executive of the combined group, with M2 shareholders owning 56 per cent of the overall company.

According to Callander, New Zealand was fast becoming a digitally driven nation with data consumption the single biggest driver, adding that the joint assets would allow the group to meet customer demands efficiently and cost effectively.