TPG buys another stack of iiNet shares


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.

Image credit: Delimiter


  1. *most of TPG’s customers appear to hate it, while most of iiNet’s customers love it.*

    *Is David Teoh consciously fucking with his iiNet counterpart? I wouldn’t put it past him.*

    man, you really have it in for DT. i guess there won’t be much “insider goss” to report once iiNet and Internode both get gobbled up. Telstra, Optus and TPG are all tight-lipped when it comes to external communications and don’t play in the delimiter sandbox.

    • I don’t have anything against David Teoh apart from the fact that he is about five times as secretive as Steve Jobs. And have you ever met a TPG customer who liked the company? Most of those I meet start complaining to me about the company as soon as they find out I’m a technology journalist.

      As for Optus and Telstra … I have good relationships with both, as well as most other parties in the industry. I wouldn’t say the news will dry up, no matter what happens. Even if TPG buys everyone, I have a few strategically placed resources here and there ;)

      • I’ve been a TPG customer for the past decade and I’m quite happy with their service.

        As long as you know what you’re talking about, do the right tests before you call them then you’ll be fine.
        Talk to customer service politely and they will treat you nicely. Simple manners and it makes a difference.

        My internet was broken or down for a day and I called them up to ask about it.
        Ended up being a line fault across the street which Telstra had to sort out within 2 days.
        Their service can be flaky once in a while but a call gets things resolved quite quickly.

    • hey Tosh, upon reflection, you were right. Those lines were a bit too strong in the article. So I’ve removed one and modified the other.

  2. Sonofabitch, spent ages typing a big reply and the page autorefreshes and clears it all.

    I’ll just cut to the gist of it – I’ve got more than 10 others onto TPG, none of them report issues yet, many are what I’d consider hardcore gamers so are certainly sensitive to things like jitter and latency, furthermore remember TPG has more than 610,000 broadband customers, most of which natural growth – they are neck and neck with iiNet for customers, without buying a bunch of ISP’s.

    Furthermore their churn rate is apparently 1.5% – very low; why would people stay if they all really ‘hated’ TPG?

    Are you implying e-masochism is well and alive in Australia? :)

    I’ve been with both TPG and iiNet, 4+ years with iiNet and a little over 1 year with TPG – very happy with TPG so far. With that said I probably would have never left iiNet if they released their current plan set a month earlier, but I could only cope with paying $119.95 for 75GB+75GB (!!!) while TPG had 500GB for $69.99 for so long.

    • I don’t have any auto-refresh set on Delimiter; sorry to hear you lost your reply :(

      I do know there are many happy TPG customers, but I hear stacks more complaints from readers about them than I do praise; and I don’t hear a lot of complaints from iiNet customers at all (apart from the ex-Netspace customers, quite a few of whom apparently got screwed over during the transfer).

  3. it’ll be an interesting battle to watch, TPG trying to buy out iiNet, and vice versa.

    still don’t know why no one wants to buy AAPT.

  4. I think it’s fair to say that if your (Telstra) phone line is ok you will love TPG. If you need lots of hand holding, or you have a poor quality line, then iiNet will do their very best for you and TPG will do the best that they can, which probably wont be enough :)

    You just have to compare the prices each charge to realize that iiNet can afford to offer top quality service, after all, the customer is paying for it.

    TPGs buying pipe was a game-changer though, close to unlimited bandwidth gave their plans real bite, and that had a flow on to the rest of the industry.

    Its not that long ago we were getting 10 gigs for $80 (/wave Telstra). If you can point to any one reason for that change, it was TPG and Pipe.

    • I love how customers of the budget isp’s like TPG and Dodo always refer to the better ISP’s only advantage as “hand holding”

      No mention of internal network design or domestic and international points of presence.

      • +1
        Budget ISP’s cut corners at every angle, i’ve used cheap ISP’s and well as the saying goes you get what you pay for.

        Would I join a “budget” cheap ISP again? not a chance.

      • Have you actually had a look at TPG’s networks structure? Sure, If you compare TPG’s network to Internode’s, they get flogged, but Internode flogs everyone.

        In my opinion, comparing TPG and iiNet’s networks are pretty even – all iiNet has on TPG is direct connectivity to Singapore. But TPG has faster latnecy into Tokyo and domestic transit at more locations (even Canberra!)

  5. iiNet versus TPG. FIGHT.

    This was bound to happen; both have the same basic growth model — acquisition. At some point both are going to run out of suitable ISPs to acquire.

    As a side note, I could see a partial IPO from Internode, but if Simon retains majority ownership, then it’s all but off the table.

    All the remains to be seen is whom will pull the trigger first on a hostile takeover.

    My money is on TPG. They’ve quietly gone about absorbing entities, whilst iiNet tends to make a big song and dance about how awesome it is they’ve bought someone out.

    It’s always the quiet ones you have to watch. :)

    • “Brendan
      Posted 01/12/2011 at 4:50 pm | Permalink | Reply
      iiNet versus TPG. FIGHT.
      This was bound to happen; both have the same basic growth model — acquisition. At some point both are going to run out of suitable ISPs to acquire.”

      Growth strategies are pretty different in my opinion – TPG purchases businesses that compliment their core business of consumer ADSL2+ or that add new areas eg Soul to get in to mobile + fixed line, PIPE to get in to fibre + gain control of their own international capacity and the latest Intrapower to add Cloud to their corporate product offerings. TPG gain the majority of their customers via organic growth.

      Whereas IInet purchase other ISP’s for their customer base primarily, with a marginal exception of the TransACT purchase as they have some fibre assets. IInet have fairly low organic growth by comparison to TPG.

      TPG organic growth FY 2011 – 59,000 custs

      IIN organic growth FY 2011 – 7700 custs

  6. TPG just do it , buy IInet , Then MM will know what’s it like to buy other company’s

  7. While of some minor academic interest, the harsh reality is that both TPG and iiNet are little minnows in the ISP/Telco space. Telstra is number one by a country mile, then daylight runs second with Optus pulling up a lame third.

    To suggest that either of them actually shapes or influences the market in any significant way is to ignore market reality.

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