iiNet supports TPG takeover after revised offer

TPG has thrown itself back in the ring as the potential new owner of iiNet after increasing its offer to buy out shares in the Perth-based ISP.

The iiNet board has recommended shareholders take up the TPG offer over a previous buyout offer floated by M2 Group, the owner of ISPs Dodo and iPrimus.

In a notice to the ASX [PDF], iiNet confirmed it had received a revised offer from TPG offering AU$9.55 per iiNet share, including AU$8.80 in cash or the equivalent value in TPG shares (set at 0.969 TPG shares for every 1 iiNet share), as well as a AU$0.75 dividend per share.

"The iiNet Board has determined the Revised TPG Offer is more favourable to iiNet and iiNet Shareholders than the Competing Proposal received from M2 Group Ltd...and recommends all iiNet Shareholders vote in favour of the Revised TPG Offer," the company added in a statement.

But the company hosed down speculation that moving into the TPG fold would damage its reputation with customers and reduce its service standards.

In a media call after making the announcement, iiNet CEO David Buckingham said he had "personally responded" to customers that had raised concerns about a TPG deal and the message he was reiterating was that it was "business as usual".

Company chair Michael Smith added to these comments with his own metaphors, saying that iiNet was "the best piece of fruit in the bowl" and that other ISPs would be foolish to squander the company's good standing after a buyout.

"It's like Volkswagen buying Porsche," said Smith. "If you tried to turn Porsche, having acquired it, into a Volkswagen, you would destroy the value that goes with that brand. If TPG didn't run iiNet like it has been run in terms of its capacity to deliver service and attract customers because of that brand proposition, they're placing at risk the amount of money that they've paid -- the significant premium."

TPG made its first bid for iiNet in March, with a AU$1.4 billion offer that would have seen iiNet shareholders offered AU$8.60 in cash per share. But while the iiNet board supported the offer, the company's founder and former CEO slammed the deal saying it was not "in the best interests of shareholders, staff or customers," and was " appallingly silent on the impact on staff and customers."

Amid this uncertainty, a new buyer began circling with a higher offer for iiNet shareholders.

M2 Group, owner of Dodo and iPrimus as well as a number of business-focused communications companies, announced a proposal to acquire 100 percent of iiNet's shares for a value of AU$11.37. The deal would see shareholders 0.803 M2 shares and $0.75 cash per iiNet share, with the AU$2.25 billion value of the deal trumping TPG to the tune of almost a billion dollars.

While the difference between the TPG and M2 offers previously came down to the offer of cash versus shares, TPG has now upped the ante and offered the best of both worlds, giving iiNet shareholders the chance to cash out on their stake in iiNet or roll over their holdings into the company, while also maintaining a sweetener in the form of the AU$0.75 dividend.

Shareholders will still need to vote on the revised TPG offer at a meeting expected to take place at the end of July, but subject to regulatory approvals, the takeover could commence as soon as August.

Updated at 5:20 p.m. AEST to include comments from Michael Smith and David Buckingham.