news iiNet has revealed it will buy fellow Australian Internet service provider Internode, in a surprise pre-Christmas announcement this afternoon which will dramatically consolidate Australia’s broadband sector ahead of the rollout of the National Broadband Network.

The $105 million deal will add some 190,000 broadband subscribers and some 260,000 active services to iiNet’s already extensive customer base, as well as adding annual revenue of about $180 million and annual earnings of about $25 million to the Perth-headquartered ISP. In addition, the acquisition will extend iiNet’s current ADSL infrastructure by about 36 telephone exchanges.

The acquisition itself will be funded by the issue of approximately 12 million iiNet shares to Internode’s principle shareholders, Simon Hackett, with the balance to be paid in cash (minus Internoe’s existing debt) from iiNet’s existing reserves and an extension of the company’s current debt facilities. iiNet will wind up with a debt balance of about $250 million following the transaction, which is expected to be complete by 29 February 2012.

Following the acquisition, Internode will trade as a separate business unit and will continue to be managed by its current managing director Simon Hackett, and his existing team.
In a statement announcing the deal, iiNet chief executive Michael Malone said it strengthened iiNet’s position as “the leading challenger brand” in Australia — ahead of Optus — and the number two provider of ADSL broadband locally.

“Internode is an attractive acquisition, consistent with our strategy of building scale in anticipation of the national broadband network (NBN) market,” he said. “Internode’s experienced management team and excellent customer satisfaction record will allow iiNet to efficiently grow its presence in the South Australian and Eastern State markets.”

“Internode is a successful company with an impressive reputation,” said Mr Malone. “The two companies are clearly a good fit with their strong cultural alignment, industry-leading customer service and shared commitment to innovation.”

In iiNet’s statement, Hackett said he and his team were “delighted” to be merging with iiNet and were excited about the opportunities ahead.

“This is a unique opportunity to increase our presence nationally.” Mr Hackett said. “Internode’s track record of consistently topping national ISP customer satisfaction surveys matches iiNet’s own customer focused corporate strategy. The best teams in the business have joined forces at last.”

“We have highly compatible business approaches, unrivalled excellence in innovation around networks, technology and content, and we gain the obvious benefits of substantially increased scale. The transaction will cement a strong and sustainable future for Internode, our staff, and our customers nationally”.

Hackett’s stake in iiNet, once the settlement is complete, will see him own a shareholding in iiNet of more than 7.5 percent. Malone himself is believed to hold close to 12 percent of iiNet.

iiNet noted in its statement that Hackett had agreed to ‘standstill’ and ‘tender’ provisions with iiNet for a period of 12 months from the period of date of completion. Under the standstill provision, Hackett is prevented from acquiring or soliciting a shareholding in iiNet greater than 7.5% of its issued capital. Under the tender provision, Hackett has agreed to tender his shareholding in iiNet into any takeover offer, scheme of arrangement or other merger recommended by a simple majority of the iiNet board. The news comes as the future of iiNet itself continues to be in play, with rival ISP TPG having recently upped its stake in the company. TPG now owns a total of 7.24 percent of iiNet.

Malone said the merger with Internode strengthens the Company’s position in the NBN environment and will allow iiNet to leverage the market opportunities presented from a base of greater scale. “This transaction consolidates iiNet’s national presence by bringing together the two leading customer service focused brands in the industry.” he said. iiNet is being advised in the deal advised by Azure Capital Limited with legal advice being provided by Middletons. Malone and Hackett are slated to hold a press conference at 4:30 this afternoon.

opinion/analysis
I’ll follow up this article with quite a lot of analysis of this situation, but I will note that on the face of it, it looks like a rather good way to block a TPG buyout of iiNet.

Image credit: Internode

Related posts:

1. iiNet completes Internode buyout a month early
2. Simon Hackett should “cash out”, sell Internode,
   says iiNet CEO Malone
3. TPG may buy iiNet, Telstra tells staff
4. iiNet ramps up Internode digestion
5. Internode to migrate customers to iiNet DSLAMs

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1. Tim
   Posted 22/12/2011 at 4:28 pm | Permalink | Reply

   wtf? did not see that one coming.

2. Michael Wyres
   Posted 22/12/2011 at 4:31 pm | Permalink | Reply

   Geez, that was never going to happen… #sarcasm

3. Michael Wyres
   Posted 22/12/2011 at 4:32 pm | Permalink | Reply

   “36 telephone changes”

   *exchanges

   • Renai LeMay
     Posted 22/12/2011 at 4:41 pm | Permalink | Reply

     Cheers, fixed.

4. Craig
   Posted 22/12/2011 at 4:34 pm | Permalink | Reply

   Reading between the lines of the annoucement one may think that iiNet is positioning itself for sale. Purchasing a number of smaller players, may make them an attractive propositon for private equity.

5. Brad
   Posted 22/12/2011 at 4:35 pm | Permalink | Reply

   Oh crap, was not expecting to see this news today. As a long-term ‘node fanboy and forum mod I’m a bit gutted to tell you the truth.

6. Mathsguy
   Posted 22/12/2011 at 4:46 pm | Permalink | Reply

   Nooooooooooo! This is the worst news I’ve heard all year – another thing buggered up by the ALP, merry xmas to you too scumbags!

   • Apollo
     Posted 22/12/2011 at 8:19 pm | Permalink | Reply

     Wow, can you stop talking?

     The ALP has NOTHING to do with this, they want to do this of their own accord – merging one brilliant ISP with one awesome ISP cant be sort of anything less than a top-notch idea.

     And if you’re talking about the NBN, seriously … do we have to go over this every time renai makes a post? You’re wrong, Fibre > Wireless and thats that.

   • Apollo
     Posted 22/12/2011 at 8:19 pm | Permalink | Reply

     Wow, can you stop talking?

     The ALP has NOTHING to do with this, they want to do this of their own accord – merging one brilliant ISP with one awesome ISP cant be sort of anything less than a top-notch idea.

     And if you’re talking about the NBN, seriously … do we have to go over this every time renai makes a post? You’re wrong, Fibre > Wireless and thats that.

     • Apollo
       Posted 22/12/2011 at 8:20 pm | Permalink | Reply

       zzzz gg double post.

   • kenny
     Posted 23/12/2011 at 2:55 am | Permalink | Reply

     Hey Mathsguy I need a laugh so do tell why you think this is another thing buggered up by the ALP,?

     • Mathsguy
       Posted 23/12/2011 at 10:27 am | Permalink | Reply

       For instance – from The Australian this morning:

       «However after experiencing a year of good growth and recognising the need to scale up ahead of the National Broadband Network, the deal was recently revisited with new interest.

       “Internode did some really good numbers in last 18 months so that convinced the (iiNet) board of the deal,” said one source close to the deal.

       Under the deal Mr Hackett will receive 12 million shares in iiNet, giving him a 7.5 stake in the company. The balance of the transaction will be paid to Mr Hackett in cash after deduction of Internode’s existing debt, which stands at $250m after the acquisition.

       With the NBN fast becoming a reality, Mr Hackett and Mr Malone said the time was right to join forces and scale up their businesses.

       “In the NBN era it’s all about scale,” Mr Hackett said.

       “The size of Internode on its own is right at the bottom edge of what we have considered viable to be an NBN player. If you are too small then the economics don’t stack up.”»

7. Akira Doe
   Posted 22/12/2011 at 4:47 pm | Permalink | Reply

   Perhaps this explains why Internode has decided follow iiNet’s backup and sign up to the “voluntary” ISP Filtering despite saying they would never do so unless compelled by law.

8. Maverick
   Posted 22/12/2011 at 4:55 pm | Permalink | Reply

   Time to change ISP’s :-(

9. Jeff
   Posted 22/12/2011 at 5:07 pm | Permalink | Reply

   MM and SH have been friends for years.
   This was a smart strategic move which will keep TPG at bay.

   For those saying ” time to leave “. Think again – the company will remain. Think of it has Leighton holdings just buying another business to stick in it’s piggy bank.

10. Grrr
    Posted 22/12/2011 at 5:08 pm | Permalink | Reply

    This is awful news.
    In October we were booted off Westnet (snapped up by iiNet a while back) because they shifted over to being a Telstra wholesaler and we are in a blackspot where we are forced to use Optus because their signal hurdle rates are more relaxed (our max transfer rate for ADSL 2+ is 1.6 Mbps because we are too far from two exchanges).

    iiNet churned us over to Internode (who re-sell Optus) almost two months ago.

    I guess they’ll be forcing us to shift again soon enough.

    • Apollo
      Posted 22/12/2011 at 8:22 pm | Permalink | Reply

      You may be in luck there, because I noticed some internal Optus documents that are pointing to Optus reselling Telstra again.

      From what I found, when I did some service checks on known Telstra-Only areas near me, they all came back with a very confirmed “OPTUS ADSL AVAILABLE VIA TW” which doesnt happen. says to me Optus has changed their tune …

      Heres hoping they actually do it.

      • Grrr
        Posted 23/12/2011 at 2:21 am | Permalink | Reply

        Thanks.
        That gives me some sliver of hope.
        A small sliver, but a sliver nonetheless.
        I’ll probably continue to prepare for the worst, but at least I have a best I can hope for.

11. Apprentice
    Posted 22/12/2011 at 5:11 pm | Permalink | Reply

    With both companies priding themselves on service and usually delivering it there are numerous benefits than could be obtained for both the company and consumers alike. Consider Simon Hacket, his passion for technology and desire to stretch the envelope combined with Michael Malones business acumen, imo this acquisition was always on the cards and will in general be beneficial for us all.

12. Clinton
    Posted 22/12/2011 at 5:20 pm | Permalink | Reply

    I for one welcome our new ISP overlords.

13. RDG
    Posted 22/12/2011 at 5:22 pm | Permalink | Reply

    The big negative for me is if they force me onto a peak/off peak which effectively halves my quota for the same price.

    • nonny-moose
      Posted 22/12/2011 at 9:05 pm | Permalink | Reply

      wont happen from the way i read the story – internode will be a subunit of iinet operating in its own right; largely in the same way Westnet does now. some of the work Simon and co currently do can be hived off to the merged entity which hopefully gives Simon more time to filed elsewhere…

      that said out of left field , wasnt expecting it etc etc. i really did think internode would remain in Simons iron grip for a while longer so i am a little sad but on the other hand the only people i really can stomach taking internode is Malone & his mob. dont much like the idea of TPG inhaling iinet either; on the other hand theres the outside risk that ultimately not just iinet but internode also get TPG’d. now theres a rather ugly prospect.

      one big que for me: what happens vis-a-vis Agile with this deal, does it remain its own entity or will it be folded into Chime?

      • Renai LeMay
        Posted 22/12/2011 at 9:09 pm | Permalink | Reply

        Things will stay the same for now, but as we’ve seen with Westnet, Netspace, AAPT etc etc etc, plans and products will likely eventually be harmonised across the various brands. Also, I don’t personally envisage Simon staying around at iiNet for more than a year or so. Once company owners cash out to the tune of hundreds of millions of dollars, they tend to leave and start other companies or buy yachts rather than work for the people they sold their company to.

        I don’t see Simon becoming just another iiNet senior executive. Not in a million years. His personality is a little too vivid and interesting for that :)

        • RDG
          Posted 22/12/2011 at 10:44 pm | Permalink | Reply

          I left Bigpond earlier this when they introduced the ‘voluntary’ filter and now I’ll go back to them as iiNet will have the filter as well soon by the looks of it.

          Bigpond has *much* better value plans for those stuck on exchanges that only have Telstra dslams. I’m currenty paying $89 for 200gb with Node. iiNet’s equivalent plan is the same price but with 100/100 peak/offpeak. My family’s usage is mainly YouTube etc which cannot be scheduled off-peak and that’s why my quota is effectively halved.

          Having been both a Bigpond & Node customer over the last few years I haven’t noticed a scrap of difference in broadband performance.

          Apart from all that I’ve never been too impressed with the attitude of iiNet staff on Whirlpool – they tend to be aggressive and arrogant.

          • iiStaffer
            Posted 24/12/2011 at 7:35 pm | Permalink | Reply

            “I left Bigpond earlier this when they introduced the ‘voluntary’ filter and now I’ll go back to them as iiNet will have the filter as well soon by the looks of it.”

            ” iiNet will have the filter as well soon by the looks of it”

            No we wont, ever.

14. Brendan
    Posted 22/12/2011 at 5:23 pm | Permalink | Reply

    Oh, wow.

    I figured this might happen, but this early? Not really sure what to make of it. Bit concerned iiNet’s model of operation will become the Internode one.. if I wanted to be an iiNet customer, I would be.

    • Renai LeMay
      Posted 22/12/2011 at 9:12 pm | Permalink | Reply

      iiNet has provided me with a pretty good service over the years, but due to them becoming more and more iiCorporate and iiEvil over the past few years I had been planning to switch to the communist ‘Node camp this Christmas. Looks like that will be a waste of time. *sigh*

15. Clytie Siddall
    Posted 22/12/2011 at 5:28 pm | Permalink | Reply

    Looking forward to your analysis, Renai, especially of how you see this impacting ‘Node customers and small ISPs working with ‘Node.

16. Jason
    Posted 22/12/2011 at 5:29 pm | Permalink | Reply

    where is the accc

    • Clinton
      Posted 22/12/2011 at 5:48 pm | Permalink | Reply

      http://www.accc.gov.au/content/index.phtml/itemId/54229

      knock yourself out.

      what exactly do you plan on complaining about?

      • Jason
        Posted 22/12/2011 at 5:51 pm | Permalink | Reply

        http://www.accc.gov.au/content/index.phtml/itemId/816373

        Anti-competitive conduct

        Part IV of the Competition and Consumer Act 2010 (the Act) prohibits various anti-competitive practices that limit or prevent competition. It aims to foster the competitive environment necessary to give consumers diversity of choice in price, quality and service for goods and services. For example, Part IV prohibits specified cartel conduct and other forms of conduct among competitors that substantially lessens competition in a market. A reduction in competition that may occur as a result of the collusion might allow some traders to push prices up and lower the quality of the goods and services they offer to consumers.

        Some anti-competitive conduct is prohibited on the basis that it has particular anti-competitive purposes or effects (i.e. cartel conduct such as price fixing or bid rigging), while other conduct is prohibited if it substantially lessens competition. A substantial lessening of competition may occur, for instance, when the ability of buyers to shop around for a deal that suits them is significantly diminished by an anti-competitive agreement among suppliers.

        • Jason
          Posted 22/12/2011 at 5:55 pm | Permalink | Reply

          will iinet allow the companies it brought out the be competitors to them, they will have the same pricing as iinet

          are iinet staff involved in the companies they brought out – yes they will be

          so accc do the job and bring competition, iinet have and still complaining about telstra not being competitive

17. Drew
    Posted 22/12/2011 at 5:43 pm | Permalink | Reply

    oh my

18. WTW
    Posted 22/12/2011 at 5:46 pm | Permalink | Reply

    The minister talked of the NBN creating retail competition in the market.

    Seems to me that more and more and more of the retail competition that did exist is continuing to consolidate in to 4 or 5 players.

    NBNCo has created artificial barriers to entry for small players on a national scale.

    This seems like a truly amazing opportunity for the next generation of smart tech kids to rise up and bring a collection of new brands to the market.

    • Michael Wyres
      Posted 22/12/2011 at 6:09 pm | Permalink | Reply

      “NBNCo has created artificial barriers to entry for small players on a national scale.”

      Balderdash – it opens out the aggregation market.

      Nextgen Networks for example are ready – (and have announced) – access to all 121 POIs through a single connection to their network – their “NBN Connect” offering.

      So for a small player, instead of the cost of backhaul to dozens – (or all) – of the POIs, they may only require a small number connections – (mainly for redundancy) – to access as many POIs as required.

      Expect similar offerings from the Telstras and Optuses of the world.

      This idea that small players can’t do it is rubbish.

      • WTW
        Posted 22/12/2011 at 6:13 pm | Permalink | Reply

        Mike I stand corrected. :)

        I wonder if this news about Internode will start some techs thinking about setting up their own small providers a bit more seriously?

        • Michael Wyres
          Posted 22/12/2011 at 6:24 pm | Permalink | Reply

          I don’t know if we’ll see a lot of LARGE new players enter the space just yet. We’re already seeing Vodafone starting their trials, but they are about the only obvious one with enough financial clout to make a serious fist of it right now.

          Most of the early growth I think will be in the “niche market”. Local guys who choose to only serve single cities or regions, or specific “feature ISPs”, such as IPTV only, or voice only.

          Given that every NTU can have four data connections provisioned to it over the same single fibre, the ability to choose data from one RSP, voice from another, and TV from yet another shifts the market towards specific service offerings.

          Interesting times ahead.

          • WTW
            Posted 22/12/2011 at 6:32 pm | Permalink | Reply

            Yes I totally agree it’s going to be interesting times alright.

            Mark Zuckerberg and his friends at university started their company.

            I wonder how many guys doing CCNA and marketing at Uni will be looking at all of this as a massive opportunity?

            I know if I was studying at present I’d be all over every bit of the NBNCo web site that I could.

19. Jason
    Posted 22/12/2011 at 5:55 pm | Permalink | Reply

    people complain to the accc they are interested

    • WTW
      Posted 22/12/2011 at 6:03 pm | Permalink | Reply

      I don’t understand what grounds the ACCC has on this.

      Both iiNet and Internode are higher value providers.

      In the open competitive market, this opens the doors to new small providers to enter doesn’t it?

      Good time to be starting a WISP.

20. Jason
    Posted 22/12/2011 at 6:13 pm | Permalink | Reply

    there is less competition for consumers, they want competitive prices and not being fooled by a isp called westnet or the others who have been brought out by iinet in thinking they are competition to iinet which they are not

    • Clinton
      Posted 22/12/2011 at 6:59 pm | Permalink | Reply

      well they didn’t seem to have much of an issue with vodafone buying out 3 mobile.

      • Duke
        Posted 22/12/2011 at 7:48 pm | Permalink | Reply

        and that worked out Sooo well too! ;)

21. Leo
    Posted 22/12/2011 at 9:32 pm | Permalink | Reply

    I’m with Jason on this one. The way it is going, by the time I get the NBN there will only be a few ISP’s to deal with. This definitely needs to be looked at by the ACCC!

22. Erik the Viking
    Posted 22/12/2011 at 9:53 pm | Permalink | Reply

    As one with more than a little inside knowledge of Internode, Michael Malone should have paid a few bucks more and not kept the existing management team on board. Internode has been a gross under-performer for years and only by getting the majority of the existing team (including Simon Walter Hackett) to walk the plank will the compamny’s true potential be realized.

    • Guest
      Posted 22/12/2011 at 10:47 pm | Permalink | Reply

      Let us know when you have ground that axe to a nub, will you?

      We will see if we can find another for you.

23. SMEMatt
    Posted 23/12/2011 at 11:19 am | Permalink | Reply

    If anything the ACCC caused this with the 121 points of interconnect thing.

    The way I see the market being is a couple of big player truly competing with each other on equal footing. A few aggregation services(someone mentioned nextgen networks) selling to a large number of small ISP similar to Telstra wholesale ports now, they could also sign with NBNco and put in back to site they have scale on. The 3rd group of providers would be specialist service provides, it wouldn’t surprise me if a number of local IT services companies didn’t provide connection back to their primary site to their client, I know one who already does this with wireless links and buying connection at a handful of PoI to cover your local client base is a good solution.

    So it expect a bit more competition at the top of the market, nothing much to change with smaller providers, and number of new specialist services available at a local level.

24. doomed
    Posted 28/12/2011 at 6:26 pm | Permalink | Reply

    sooooooo does this mean internode customers will get unmetered xbox live like iinet users do????

25. Mary
    Posted 04/01/2012 at 7:29 pm | Permalink | Reply

    I am away in a different state trying to access my emails and cant access my emails , I have had a lot of problems with their service and certainly would NOT recommend them to anyone, I sent them a message on Tuesday and as yet no response and this normal service from them,