news Serial acquirer TPG has significantly upped its stake in fellow national broadband provider iiNet, with the company now owning a total of 7.24 percent of Michael Malone’s baby.
TPG disclosed in mid-October this year that it had quietly bought about 4.4 percent of iiNet’s shares, a figure which it subsequently updated to 5.14 percent following the purchase of another parcel of stock. At the time, TPG said it had “no specific intention regarding iiNet” other than to own the shares as “a strategic investment”.
This afternoon, Delimiter received an anonymous tip to the effect that TPG had bought another parcel of iiNet shares. We were unable to immediately verify the information, with neither iiNet nor TPG commenting on the issue. However, late this afternoon TPG filed an updated statement (PDF) with the Australian Stock Exchange noting its stake had been upped to 7.24 percent of iiNet.
TPG’s statement revealed it has been buying iiNet shares more or less continuously since mid-October, with trades generally being worth in the tens of thousands up to more than a hundred thousand, and several large trades of $825,000 and $6.2 million. iiNet has been invited to comment on the stock purchases tonight but has not yet responded.
If TPG’s share of iiNet approaches 20 percent, the company will become subject to Federal Government rules which would likely require it to make an offer for the rest of the company; although it is believed that companies can acquire more than that percentage through small ongoing trades without the rule being triggered. It is common for large stakeholders in Australian companies to keep their share below that figure in order to avoid triggering the takeover rule.
Any move by TPG on iiNet would likely be viewed by iiNet’s board as a hostile takeover attempt. The two ISPs 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 major players — current incumbents Telstra and Optus, with TPG taking third, or possibly second (above Optus) place. Other rivals like Internode and Primus currently have a reduced market share compared with the existing top four players (including iiNet).
However, iiNet chief executive Michael Malone several weeks said a public inquiry would need to be held if TPG decided to extend its stake in his company to the point where an acquisition was on the cards — and the issue could become a policy question to be decided by the Federal Government. It is believed Malone as referring to the levels of competition in the broadband sector.
And now we come to it.
There is now absolutely no doubt that TPG has long-term designs on iiNet. And why not? iiNet is believed to have frustrated an attempt by TPG’s to buy AAPT’s consumer division, and I’m sure the pair have been involved in other efforts to buy out the same assets in Australia’s telecommunications sector. The last shot pays for all, and by acquiring iiNet TPG would be able to roll in a stack of assets, a stack of customers and a stack of fantastic staff into its stable.
Plus, its share buyback scheme notwithstanding, iiNet’s shares have been pretty cheap of late, hitting $2.20 several times over the past six months and staying below $2.40 for most of that time. I am betting that the company’s recent spike (iiNet closed today at $2.69) is due to TPG’s efforts and the share buyback scheme combined.
Now, there is no doubt, as Michael Malone made clear several weeks ago, that iiNet would fight to the last breath to avoid being taken over by TPG. The two companies couldn’t be more different. They have radically different corporate cultures, radically different approaches to the market, radically different structures … TPG and iiNet are chalk and cheese.
Plus, Michael Malone is not done yet with his great dream of building a great Australian telecommunications company to rival the likes of Telstra and Optus. It’s a dream he’s been pursuing for twenty years and he’s not going to let TPG chief David Teoh buy his baby, gut it for costs and start pushing customers onto low cost plans with TPG’s famously low levels of customer service.
I wouldn’t put it past Malone himself to be rapidly buying up shares in iiNet himself at this point. He already owns a substantial chunk of the company — I believe it’s something like 12 percent — and with enough of his own shares, he will easily be able to convince many iiNet shareholders not to sell out to TPG’s ongoing raid. I would bet quite a few iiNet shareholders will be an idealistic lot who’ve been holding onto their shares for many years; they won’t be likely to quickly sell them off for a modest offer from TPG.
In any respect, TPG has now signalled it’s game on. Five percent is a strategic investment. Seven percent and higher is more than that; it’s a shot across iiNet’s bow.
Two further things do really interest me about this whole process. Firstly: David Teoh’s sense of timing. He must know that iiNet’s in the High Court in Canberra this week with the Australian Federation Against Copyright Theft. Malone’s actually personally stuck in the courtroom with no access to his smartphone or communications of any kind (something he is pretty frustrated by). Is David Teoh consciously screwing with his iiNet counterpart? I wouldn’t put it past him.
Quietly buying up iiNet stock over the past month? A bit over a million. Picking up a slab this week? $6.2 million. Thinking about the look on Malone’s face when he exits the courtroom to find out? For David Teoh: Priceless. Probably I’m going a bit too far here. But it’s certainly interesting to think about.
And secondly, there is the irony of Malone’s personal situation at the moment. Could the executive lose his company to a corporate raider, just months after he has been awarded not only the Communications Alliance industry Ambassador of the Year but also the Ernst & Young Entrepreneur of the Year? This would indeed be irony writ large.
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