M2 drops on knee, offers scrip ring for iiNet's hand

Counter-offer to the TPG takeover

A second bidder has entered the competition to acquire Australia's second-largest fixed-line internet service provider iiNet, raising the possibility that initial predator TPG might not have things its own way.

The Australian Financial Review reckons the bid was received by iiNet on Friday, and offers shares (but no cash) but would value iiNet higher than the $AU1.4 billion cash offered by TPG in March.

iiNet has already signed with TPG, but its investors (including founder and former CEO Michael Malone) have been agitating for a higher offer or, as the Fin puts it, “test the market” for a better bid.

M2 had recently acquired Kiwi ISP and telco service provider CallPlus for a cool $AU250 million.

iiNet would significantly boost M2's broadband infrastructure, currently concentrated in the much smaller iPrimus. The company also owns the cheap-and-cheerful Dodo brand, the Commander small business telecommunications brand, Engin's VoIP and a wholesale operator under its own marque.

The Fin suspects a counter-offer from M2 might push TPG to elaborate on the kinds of synergies it expects from the iiNet transaction.

The rival transaction would depend on iiNet deciding it likes the valuation of M2 shares in the offer.

M2 has confirmed its interest, saying its offer values iiNet at $AU1.6 billion.

"M2 estimates it can achieve run-rate EBITDA synergies of approximately $60.0 million per annum", the M2 statement says.

To reassure everyone it intends to keep the brand, M2's offer includes two seats on its board for iiNet directors. ®

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