Sydney-based TPG Telecom and its competitor iiNet scored a rare double today after announcing a friendly takeover offer, with shares in both the bidder and its Subiaco-based target rising strongly as investors welcomed the combination as a logical strategic fit.
Sydney-based TPG Telecom and its competitor iiNet scored a rare double today after announcing a friendly takeover offer, with shares in both the bidder and its Subiaco-based target rising strongly as investors welcomed the combination as a logical strategic fit.
Shares in iiNet closed almost 25 per cent higher after TPG Telecom offered a $1.4 billion takeover deal, which iiNet's board of directors has endorsed.
TPG's shares were also up strongly, defying the typical pattern that sees the bidder's share price suffer after launching a takeover offer.
iiNet shareholders have been offered $8.60 cash per share, and will also receive the company's 10.5 cents interim dividend.
The combined consideration is a 33 per cent premium to the company's five-day average stock price.
"The board views this as a significant reward for shareholders who have shown their faith in iiNet," iiNet chairman Michael Smith said.
If TPG acquires iiNet, the combined company would surpass Optus as Australia's second-biggest internet provider, putting it behind Telstra's 3 million-strong customer base.
TPG chief executive David Teoh said the deal would create a combined company with 1.7 million subscribers.
"iiNet and TPG are highly complementary businesses in terms of geographic presence, market segments and corporate customer base," he said.
"The combined businesses will provide broadband services to over 1.7 million subscribers and will be well positioned to deliver scale benefits in an NBN environment."
iiNet would contribute 975,000 broadband customers to this total.
The merged business would have combined revenue of $2.3 billion, with TPG combining a little over half of the total.
There is a bigger difference between the two companies in terms of profitability. The combined EBITDA would be about $654 million, with TPG expected to contribute $455 million to this total.
TPG is already a substantial shareholder in iiNet, owning about 10.2 million shares which equates to a 6.3 per cent interest.
Mr Teoh and his family are dominant 36.7 per cent shareholders in TPG, with institutional investor Washington H Soul Pattinson & Co holding a 26.9 per cent stake.
IG market analyst Evan Lucas said the $1.4 billion price tag was fair for both companies, especially in light of iiNet's disappointing first-half results.
"It's a good price ... it's not expensive but it's certainly not cheap."
iiNet shares lost 11 per cent in one day in February after it reported a flat first-half profit.
Mr Lucas said the deal would give TPG, which specialises in low-cost internet, exposure to iiNet's premium customer base.
If iiNet shareholders approve the deal, the takeover is set to be completed in July.
iiNet is being advised by Azure Capital and law fim K&L Gates while TPG has been advised by Macquarie Capital and Minter Ellison.
iiNet shares closed 24.8 per cent higher at $8.50 per share, while TPG finished off trading for the week with a 17.7 per cent rise to $9.11.
