news National broadband provider iiNet today revealed rival TPG had quietly bought about 4.4 percent of its shares, in a move which will likely lead to speculation about the future of iiNet as an independent company.
“iiNet Limited regularly analyses the beneficial ownership of its securities. The most recent analysis of the iiNet share register shows that entities owned by TPG Telecom (ASX:TPM) have acquired a shareholding in iiNet, but not to a level (being 5 percent) requiring the lodgement by TPM of a substantial shareholder notice,” iiNet told the Australian Stock Exchange in a statement today.
iiNet further disclosed that it understood that TPG had bought about 1.35 million shares in iiNet as a result of the dispersion of iiNet shares formerly held by fellow telco Amcom on 18 August this year. “iiNet believes that TPM, through two other subsidiaries, has recently acquired an additional holding of 5.3 million shares, and currently holds approximately 4.4 percent of iiNet,” iiNet added. The ISP noted it would keep the market informed of any developments with regard to TPG and its stake in iiNet.
According to iiNet’s most recent annual report, the company has a number of other significant shareholders holding more than five percent of the company — predominantly financial services organisations registering iiNet shares on behalf of their customers. At the time, the company had five major shareholders with between 9 and 13 percent of the company, with the remainder being owned by much smaller companies.
A company named ‘Perth Internet’, which holds 11.84 percent of iiNet, is believed to be associated with iiNet chief executive and co-founder Michael Malone.
News of TPG buying a substantial stake in iiNet comes as speculation about iiNet’s corporate future has continued to simmer in Australia’s telecommunications industry over the past several years. Fellow telcos Amcom and Telecom New Zealand had previously held substantial slices of iiNet, largely protecting the company against hostile takeover attempts.
However, both telcos have recently parted company with their iiNet shares — Telecom New Zealand last year as part of iiNet’s deal to buy the consumer business of Telecom New Zealand’s Australian subsidiary AAPT, and Amcom in August this year.
In what many in the industry saw partly as a reaction to the uncertainty over its ownership, iiNet has recently conducted a share buy-back scheme. However, the company’s share price has not significantly recovered, despite the initiative, and has hovered between the $2.20 and $2.50 mark over the past few months — where it had previously reached beyond $3.
Any move by TPG on iiNet would likely be viewed by iiNet’s board as a hostile takeover attempt. The have radically different corporate cultures and market approaches, with iiNet being viewed as a very open and friendly company which tends to target mid-level broadband consumers with premium customer service and a quality broadband network, and TPG having a more cut-throat internal corporate culture and a market focus which sees it positioned as one of Australia’s discount kings of broadband.
If an acquisition of iiNet by TPG did occur, it would see Australia’s telecommunications sector drastically consolidated in the arena of fixed-line broadband into just three players — current incumbents Telstra and Optus, with TPG taking third place. Other rivals like Internode and Primus currently have a reduced market share compared with the existing top four players (including iiNet).
At this stage I view this as a defensive share acquisition by TPG. Basically, TPG is saying it does want to buy iiNet at some stage in the future, but it probably doesn’t quite have the funding right now to launch an outright offer. Consequently, the company will likely gradually increase its stake in iiNet and try to prevent anyone else from acquiring the company.
I would expect that things right now are pretty panicky in iiNet headquarters. Under no circumstances does the company wish to be acquired by TPG. However, with the lack of cornerstone investors on the iiNet share registry, and its stock buy-back not having much effect on its share price, the company is clearly in play for an acquisition. TPG’s encroachment on iiNet’s registry is an open recognition of that fact.
Update: TPG has issued the following statement:
Further to the announcement made to the ASX this morning by iiNet, TPG confirms that it has recently acquired a small interest (below 5 percent) in iiNet through both the in-specie distribution of the Amcom Telecommunications Limited (AMM) shareholding in iiNet to AMM shareholders, of which a TPG Group subsidiary is one, and also through the on-market purchase of iiNet shares.
TPG has no specific intention regarding iiNet other than to own shares as a strategic investment.