iiNet board opts for certainty with TPG

Certainty of TPG cash offer for shares, as well as option of TPG shares, swayed board

The certainty of the revised TPG offer for Internet service provider iiNet was a key factor in the ISP’s board recommending it over a competing offer from M2, according to iiNet chairperson Michael Smith.

TPG’s second offer for the ISP, made public yesterday morning, offers iiNet shareholders the choice of either cash or TPG shares as well as a special dividend.

The value of M2’s all-scrip offer, which was made after TPG’s approach, was still significant enough to trigger the matching rights process that saw TPG offer its significantly boosted proposal.

TPG’s revised offer is $8.80 cash or 0.969 TPG shares, plus a $0.75 dividend, for each iiNet share. (The offer is subject to a cap of 27,523,946 TPG shares.)

TPG’s original cash-only offer was valued at $8.60 per share.

The new offer implies an enterprise value for iiNet of $1.9 billion.

M2 valued its offer for iiNet at $11.52 per share. That was based on $9.25 worth of M2 shares and a special dividend of $0.75 per iiNet share as well as an estimation of $1.37 in synergies that would accrue to iiNet shareholders.

“In the case of M2 there was a range of values that could be ascribed to M2 shares, even looking over a relatively narrow 30 day range,” Smith said.

“There’s also no doubt a combination of iiNet and M2 would form a strong company. Any prudent board must of course also make some discount for future risk. The future is not certain and there is always some risk to business plans performing as contemplated, even in the most well run of companies.”

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“We preferred the certain value of the TPG cash offer” compared to the “potential range of implied values arising from the competing M2 proposal,” the iiNet chairperson said.

“With the increased value of the offer from TPG alongside the capped scrip alternative for shareholders we felt that the increased value of the certain TPG cash offer warrants the recommendation of the board,” Smith said.

“Ultimately, it came down to the significant value certainty of the revised TPG offer alongside the flexibility to receive scrip for those who preferred that option, subject of course to the cap,” Smith said.

Both TPG and M2 have indicated that they would retain the iiNet brand if they were successful in their efforts to acquire the ISP.

“TPG has clearly communicated their intention to retain the iiNet brand and accordingly the high level of customer service that iiNet is renowned for,” Smith said

The matching right process has slightly amended the timetable for the acquisition, the iiNet chairperson said.

Completion is now scheduled for mid-August instead of mid-July.

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