TPG’s (TPM) surprise agreed $1.4 billion bid for rival iiNet (IIN), has shaken the Australian telco market.
The $1.4 billion offer will be debt financed by TPG which will become the second biggest fixed line telco in the country after Telstra (TLS) and ahead of Optus/SingTel (SGT).
It could see Optus/SingTel launch a counter offer to protect its position, but SingTel seems to have curtailed its previously aggressive corporate activity in recent years.
The Australian Competition and Consumer Commission said this morning it will conduct a public review of the takeover once both parties submit their proposals.
“We will call for submissions at that time and details will be posted on our public register," the ACCC said in a statement.
"The ACCC reviews mergers and acquisitions which have the potential to raise concerns under the Competition and Consumer Act 2010.
“The CCA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market.”
This could be the biggest obstacle to the deal. TPG says it has no need to do due diligence on iiNet.
But a key problem for TPG might be its poor service record insofar as the number of complaints with the Telecoms Ombudsman compared to iiNet, which is one of the least complained about.
That indicates two different cultures, which could cause problems down the track for the merged company if customers start leaving.
TPG chair David Teo and his wife own 36.71% of TPG, which gives them a holding worth $2.2 billion before this deal at Thursday night’s closing price.
And, the Sydney investment company, Washington Soul Pattinson owns 26.88% of TPG – worth $1.6 billion, which makes a mockery of the self-serving campaign by Peterpetual and Carnegie to break up Soul Patts (which collapsed last year when no one listened to their arguments).
iiNet shareholders get a record $8.60 in cash and an interim dividend of 10.5 cents a share should the deal happen. And if it does, iiNet will make a further distribution to shareholders before the takeover happens.
That will reduce the purchase price (its all about tax free distributions to iiNet shareholders). TPG also owns 6.25% of iiNet.
TPG subscriber numbers for the combined company will jump by 950,000 for fixed line internet services (Nearly all broadband) to around 1.7 million, second only behind Telstra’s 3 million.
Optus and its Singapore Government controlled parent could always launch a counter offer, but that will need FIRB approval, and take time.
Today’s announcement has come as a complete surprise to the market and to the telco sector in particular.
If the deal happens, TPG’s market value will rise to more than $8.5 billion. It still has a 6.7% stake in Amcom, which is merging with rival telco, Vocus.
TPG is due to release its interim results in the next week or so.
