TPG ups it’s bid for iiNet
We mentioned in a blog the other day our view that the market would be likely see TPG Telecom Limited (ASX: TPM) return with a new bid for iiNet Limited (ASX: IIN) – and yesterday morning they did.
Judging by the market’s reaction however, it was not all as expected (iiNet was down 2.8 per cent), so let’s run through it briefly:
- Offer of $8.80 per iiNet share or 0.969 TPG shares per iiNet share, plus a 75 cent special dividend (subject as before to a tax ruling on paying out retained earnings, if not approved by the ATO TPG will bear this).
- With an offer valued at $9.55 per iiNet share, this is an 11 per cent increase from the prior offer of $8.60 per share.
- In addition, the number of TPG shares issued is to be capped at 27,524K shares. This means that their overall offer is really 15 per cent script, 85 per cent cash (iiNet shareholders will therefore own approximately 3 per cent of the combined entity).
- iiNet have recommended that shareholders take this offer (see here, notably that they accept very quickly). This isn’t particularly surprising; the offer is 40 per cent above where the shares were trading prior to any hint of an acquisition. In addition, the certainty afforded to investors by a cash offering is an attractive factor (ignoring capital gains implications).
- In terms of consideration, the deal seems approximately equal to that of the offer made by M2 Telecommunications Limited (ASX: MTU) last week, except it contains less script. Given that iiNet management have recommended the TPG deals, one wonders if they considered M2’s valuation to be lower than where it’s currently trading ($11.10 as of the close today).
What’s interesting is that the prior agreement contained a “standstill clause”, in short this is where TPG would agree not to buy any more shares in iiNet whilst the offer was in effect. The new agreement doesn’t have this clause which means (theoretically), if another entity made a higher bid for iiNet, TPG could build a blocking stake to stop it. As happened recently with Amcom Telecommunications Limited (ASX: AMM).
Of course, there’s still the ACCC review and approval to come. Any investors hoping to invest in a combined TPG/iiNet entity may wish to consider this risk whilst making their decision.
The Montgomery Fund and the Montgomery [Private] Fund hold M2 Telecommunications (ASX: MTU).
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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