TPG Telecom Lifts Bid for iiNet by 11%, Displacing M2 Offer

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TPG Telecom Ltd. increased its takeover bid for Australian broadband company iiNet Ltd. to A$1.56 billion ($1.24 billion), winning the board’s backing despite an offer from M2 Group Ltd. that’s worth about A$20 million more.

TPG Telecom, controlled by billionaire David Teoh, lifted its previous cash offer for iiNet about 11 percent to A$9.55 a share, and also gave shareholders the chance to be paid in its own stock instead. While M2 was offering A$9.67 in stock and cash, iiNet’s board said Wednesday TPG’s bid was preferable because of a larger cash component.

The fight illustrates the intense competition among Australia’s mid-sized phone companies to become the country’s second-biggest provider of broadband Internet after Telstra Corp. IiNet’s board, whose decision to support TPG’s original A$8.60 a share offer on March 13 was criticized by both the target’s founder and its largest shareholder, must now persuade investors to support an offer that, on paper, is lower.

“TPG’s going to win this one,” Sam Fimis, a private client advisor at Patersons Securities Ltd. in Melbourne, said by phone. Major shareholders in iiNet will “create some agitation but they’ll fall into line eventually.”

IiNet shares fell 2.4 percent to A$9.76 at 12:33 p.m. in Sydney, while TPG Telecom gained 3.9 percent to A$9.13. M2 shares fell 1.4 percent to A$10.95.

TPG Telecom will offer A$8.80 cash for each iiNet share, as well as a 75 Australian cent special dividend. Shareholders would have the option of taking 0.969 TPG shares per iiNet share, subject to a cap.

Special Dividend

Under the M2 offer lodged April 27, iiNet shareholders would have received the same special dividend as well as 0.803 M2 shares for each of their own, worth about A$8.92 at Tuesday’s closing price. M2 said it would only pay the special dividend, which would come from iiNet’s retained earnings, if the target company had enough cash. TPG said it would top up any shortfall from its own reserves.

“The Board has weighed up both offers and given careful consideration to the merits of a primarily cash-based offer, to one which predominantly comprised scrip,” iiNet Chairman Michael Smith said in a statement.

Both M2 and TPG Telecom could afford to pay as much as A$10 a share and still boost earnings, Bradley Clibborn and Michael O’Meara, analysts at Credit Suisse Emerging Companies Pty in Sydney, wrote in a note to clients March 13.

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