M2 offers $1.6bn for iiNet: bidding war starts

M2 Group has revealed it is competing with TPG to buy iiNet, with a proposed share deal reportedly valuing the ISP at more than $1.6 billion.

Unlike TPG’s cash offer valuing iiNet at approximately $1.4 billion, the M2 Group proposal would see iiNet shareholders would receive 0.803 M2 shares plus a $0.75 special dividend for each iiNet share.

Adding on the earnings synergies M2 Group is expected to bring would value iiNet at approximately $2.25 billion.

iiNet is still recommending the TPG offer announced last month while it completes due diligence on the competing M2 Group offer. If it decides the M2 offer is better, TPG will have the opportunity to propose a counter proposal.

M2 plans to operate iiNet as a standalone brand that would be “nurtured and grown under the M2 umbrella.”

M2 stated it “fully recognises the value of different brand strategies and intends to leverage the strength of the iiNet brand and its customer ethos”, indicating it has perhaps taken note of concerns over how TPG’s low-cost approach would affect iiNet’s business.

The M2 Group pointed to its acquisitions of Commander, Primus and Dodo, claiming it has maintained the presence of each of those brands in their markets.

The telco also argued iiNet shareholders would benefit from the significantly increased market capitalisation of the enlarged M2 Group.

M2’s offer follows concerns from some iiNet shareholders about TPG’s bid, including iiNet founder Michael Malone who questioned the terms of the acquisition in March.

At the time, Malone described the deal as “appallingly silent on the impact on staff and customers".

M2's multimillion dollar expansion

The deal would see iiNet become a part of a business that supplies fixed line, mobile data and voice to business and consumers.

M2 has spent tens of millions acquiring companies in the last few years, including both Dodo and Eftel in 2014 for a combined total of $248 million. It also spent $192.4 million buying Primus Telecom in 2012 and $19 million on Commander in 2009.

At the same time, it has made several major job cuts - announcing plans to reduce staff numbers by 100 in 2013 and then announcing another 150 job cuts this year.

The strategy has paid off in terms of revenue, with M2 reporting more than $1 billion in revenue in its 2014 financial year, while net profit after tax grew to $67.1 million.