iiNet accepts TPG’s sweetened $1.2-bn takeover offer

Australia's third-biggest DSL internet service provider (ISP) iiNet Ltd has accepted TPG Telecom Ltd's revised A$1.56 billion ($1.2 billion) bid over a rival, roughly equal indicative offer from Melbourne-based M2 Group Ltd.

''The iiNet board unanimously recommends that iiNet shareholders vote in favour of the revised TPG offer, in the absence of a superior proposal and subject to the independent expert concluding that the revised TPG offer is in the best interests of iiNet shareholders,'' iiNet said in an ASX release.

With the acquisition, Sydney-based TPG will become the country's second-largest web service provider, after Telstra's Big Pond.

TPG's raised offer of A$9.55 per iiNet share is 11-per cent higher than its earlier offer of A$8.60 per share, representing a 40-per cent premium to iiNet's stock price of A$6.81 on 12 March, the day prior to the initial announcement of the deal.

The price represents an enterprise value of A$1.9 billion for iiNet and includes a special dividend of A$0.75 a share.

In comparison, the implied price of the M2 offer varies with its share price, which has been A$9.37-A$9.67 since announcement of the deal on 27 April, iiNet said.

Besides, TPG's offer allows iiNet shareholders to choose between receiving consideration in cash or in TPG stock in the ratio of 0.969 shares per iiNet share with a cap on new TPG shares of 27.5 million.

The iiNet Board considers that additional upside from synergies under the M2 Proposal is likely to be limited, as the majority of value attributable to potential future synergies has been factored into the price premium offered for iiNet shares.

The Revised TPG Offer provides significant value certainty for iiNet Shareholders who prefer to receive cash and also flexibility for those who prefer to receive scrip, subject to the cap, the statement said.

M2 can still come forward to topple the deal with a higher offer.

TPG, controlled by Malaysian-born billionaire David Teoh, is Australia's fourth-largest internet service provider with over 670,000 broadband customers, and owns the country's second-largest DSL network.

Perth-based iiNet has a broadband customer base of over 975,000. The combined entity would move up to the second rank in the Australian broadband market pushing down SingTel-Optus with around 988,000 subscribers to the third position.

Big Pond is the country's biggest fixed line internet provider with approximately 3 million customers.

"I just don't see a world three or four years away, where outside of small niche providers people will be able to survive without... much bigger scale," iiNet David Buckingham told reporters in a teleconference.

"You've got an incumbent that makes more profit than the rest of the sector combined. You need more scale," he added.

TPG said that it intends to operate iiNet as a separate brand further to completion of the acquisition.

The merger scheme is expected to be implemented by mid-August 2015.

Azure Capital Limited is acting as financial adviser iiNet on the deal.