TPG to acquire iiNet for $1.4 billion

TPG Telecom has announced to the ASX a full acquisition of rival ISP iiNet for approximately $1.4 billion.

If approved, the combination would create a monster telco with revenues of $2.3 billion, earnings of $654 million and a combined broadband user base of more than 1.7 million.

iiNet shareholders will receive cash consideration of $8.60 per iiNet share, which puts the telco's value at about $1.4 billion.

“iiNet and TPG are highly complementary businesses in terms of geographic presence, market segments and corporate customer base,” said TPG chairman and chief executive David Teoh.

iiNet chairman Michael Smith said: “The [iiNet] board views this as a significant reward for shareholders who have shown their faith in iiNet. The price of $1.4 billion is a very tangible measure of the value that the extraordinary people of iiNet have created through their innovation, brilliant service and capacity to add value.”

“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.” 

It is understood the Australian Competition and Consumer Commission will review the merger. 

In a statement sent to the Fairfax press, the regulator said: "We will call for submissions at that time and details will be posted on our public register. The ACCC reviews mergers and acquisitions which have the potential to raise concerns under the Competition and Consumer Act 2010.

"The CCA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market."

Market differences

The two providers already position themselves in different market segments: TPG in the "value-based" lower end of the market while iiNet positions itself as a "premium" offering.

In business sales, the two telcos also have different skews: TPG is focused on government and corporate clients, while iiNet has a strong SME business.

TPG has a enterprise cloud play through its Trusted Cloud subsidiary, which it founded through the acquisition of IntraPower in 2011; iiNet has also started dabbling in B2B sales through its acquisition of Tech2 Group in September 2014.

Speculation about a TPG acquisition of iiNet has been around the industry for some time, with Fairfax reporting last March that 2014 could have been the year to pull the trigger.

Both companies have grown via heavy M&A activity. TPG acquired Pipe Networks in 2010, IntraPower in 2011 and AAPT in February 2014; iiNet itself has grown through M&A over its history. Its acquisitions include Adam Internet in August 2013 and Internode in December 2011.