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ACCC approves TPG's AU$1.5B iiNet acquisition

The Australian consumer watchdog has decided to approve TPG's takeover of iiNet, with the combined entity to eclipse Optus customer numbers to become Australia's second-largest fixed-line telco.
Written by Corinne Reichert, Contributor

The Australian Competition and Consumer Commission (ACCC) has handed down its decision on telecommunications company TPG's bid to acquire rival iiNet in a deal worth around AU$1.5 billion, approving the bid on Thursday morning.

"While the ACCC was concerned that the acquisition of iiNet by TPG may lessen competition in the retail fixed broadband market, particularly in the short term, the ACCC concluded that this would not reach the threshold of a 'substantial' lessening of competition as required under section 50 of the Competition and Consumer Act," ACCC chairman Rod Sims said.

The consumer watchdog found that due to the continuing high level of competition within the fixed-line market from Telstra, Optus, and M2, the TPG-iiNet merger would not limit this, as long as no other acquisitions are permitted in the future between these four companies.

"The ACCC has noted the growing consolidation in what will now become a relatively concentrated broadband market. Any future merger between two of the remaining four large suppliers of fixed broadband is likely to raise serious competition concerns," Sims said.

The deal will see TPG acquire 100 percent of iiNet shares, and will result in TPG becoming Australia's second-largest fixed-line telco after Telstra, increasing its customer base to 1.7 million. TPG will pay AU$9.55 per iiNet share, incorporating a AU$8.80 cash or scrip consideration and AU$0.75 cash per share.

Late last month, iiNet shareholders also voted in favour of the takeover, with 95.09 percent voting in favour and only 4.91 percent voting against. A total of 105.8 million shares voted on the resolution, with 100.63 million votes in favour and 5.2 million votes against. Almost 90 percent (89.93 percent) of shareholders voted in favour of the deal, with the majority decision of votes also easily reached.

TPG's initial all-cash offer of AU$1.4 billion in March was eclipsed by rival telco M2's predominately scrip AU$2.25 billion counter-bid in April, which was backed by iiNet, resulting in TPG upping its offer the following month.

"The board has weighed up both offers, and given careful consideration to the merits of a primarily cash-based offer to one which predominantly comprised scrip. We believe the revised cash offer of AU$9.55 from TPG is favourable to M2's predominantly scrip offer," iiNet chairman Michael Smith said in a statement in May.

M2's offer would have seen 0.803 M2 shares swapped for each iiNet share, plus a AU$0.75 special dividend.

Concerns had been previously raised by iiNet customers to the ACCC that TPG's emphasis on operating at a low cost might adversely impact iiNet's traditional high emphasis on customer service in the event of a takeover.

"A number of consumers noted in submissions to the ACCC that they had switched their service provider from TPG to iiNet because they value iiNet's perceived superior customer service," the ACCC said in June.

The iiNet board had since confirmed TPG's intentions to retain the iiNet brand and level of customer service, and the ACCC on Thursday found that there would be "sufficient incentive" for TPG to carry out iiNet's customer service guarantees.

While iiNet founder and shareholder Michael Malone originally criticised the takeover deal, due to the companies' differing philosophies on company culture and the resultant lack of competition in the industry, he stated in May that he would not seek to block it.

"To be blunt, I'm not sure yet about this new bid. To be fair to TPG, they have listened to shareholder comments and the new offer does address those concerns," Malone said on broadband enthusiast website Whirlpool.

"How do I feel? Well, of course I always wanted iiNet to be an independent voice. But I have said since 1999 that I will not (and now cannot) use our shareholding to block a fair bid."

The implementation date, when iiNet shares will be transferred to TPG, is expected to be September 7.

Update at 2.07pm AEST, August 21: The Australian Federal Court on Friday afternoon alsoapproved the TPG-iiNet takeover (PDF), with iiNet's shares expected to suspend trading as of August 24.

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