TECH DEALS: TPG's taste for iiNet

TPG and iiNet look set for a collision, while Samsung gets another patent win over Apple, this time in the US.

Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page. 

TPG, iiNet

Internet service providers iiNet and TPG Telecom are seemingly headed for a collision given that TPG boss David Teoh has developed a taste for iiNet shares. After buying a 4.4 per cent stake in the Perth-based ISP in October, TPG has subsequently snapped up extra parcels and last week spent $6.5 million to bump up its stake to 7.24 per cent. While TPG still has some way to go before reaching the 20 per cent mark to trigger the takeover rule, the company’s creep up iiNet’s register is a clear sign that Teoh wants to be more than just a passive investor.

Consolidation is the name of the game in the telco sector and both iiNet and TPG know that. iiNet recently added TransACT to its roster of acquisitions while TPG has spent over $385 million in the last couple of years to purchase Pipe Networks and cloud services provider IntraPower. 

The two companies are locked in a battle for that third spot, behind Telstra and Optus, in the fixed-line broadband stakes and for the time being iiNet has the lead. To maintain that position iiNet boss Mike Malone will need to keep the acquisition pipeline rolling and that means the likes of Adam Internet and Internode will naturally be on the radar. In fact, growth through acquisition is a mantra close to the heart of both Malone and Teoh, although TPG’s focus has been to focus on assets that complement its existing ADSL2 business while iiNet has been primarily focused on building its customer base. However, that’s undergoing a shift, namely through the purchase of TransACT, which holds fibre assets, and the launch of its cloud computing offering for small to medium businesses.

iiNet has teamed up with vendors VMware, IBM and Juniper  to build  the iiNet Business Cloud which will allow businesses to build and deploy their entire infrastructure in the ‘cloud’ for a minimum monthly fee, starting at $29 per month. Getting into cloud computing makes sense for iiNet given that it’s just the sort of extra service that fuels organic growth and the ISP is now clearly interested in making a move from just selling services to consumers to targeting businesses. Whether the SMB market will gravitate to iiNet’s infrastructure as a service (IaaS) cloud offering remains to be seen, but the business is certainly taking on a shape that will attract TPG.

Malone won’t make it easy for TPG and after raising the spectre of a public inquiry there is chance he could start beefing up his stake in the company to defend it against a move by TPG. As Delimiter’s Renai LeMay points out, raising his personal stake in iiNet will allow Malone to build a bulwark around which loyal shareholders can rally. Convincing these shareholders will be a real test for TPG and should prevent an imminent raid. However, with iiNet’s share price hovering round the $2.80 mark, and the ISP distracted with the online piracy stoush in the High Court, there’s nothing stopping TPG from buying up more parcels of shares. Another significant purchase and Teoh could well have a seat on iiNet’s board.

Apple, Samsung Electronics

The global patent war between Samsung Electronics and Apple continues unabated and while this doesn’t fit directly into the M&A category the stoush has provided enough intrigue to warrant a mention. As far as the Australian front of its war against Apple is concerned it’s been a frustrating wait for Samsung Electronics and it’s something that Apple is most likely to prolong with a concerted stalling tactic.

Samsung was all set to start shipping out the Galaxy 10.1 tablet this week after the Federal Court overturned an earlier injunction to temporarily ban the sales of the device. However, it was Apple that ended last week on a positive note after it managed to get the ban extended for an extra week. The D-Day for Samsung now is December 9 when the High Court will consider Apple’s appeal against the federal court’s decision to lift the injunction.

One week may not sound a lot, after all the fight has been going on since April, but it’s another frustrating turn of events for Samsung, which desperately needs to get the Galaxy in to stores before Christmas. There is a good chance that Apple’s attempt at the High Court will fail but by then the damage to the prospects of Galaxy 10.1 in the local market may already be too late.

Fortunately for Samsung there was some happier news from the US, where it has managed to blunt Apple’s attacks and will be able to sell the Galaxy tablet and smartphones.

According to Reuters, Apple’s call for a preliminary injunction to block the sale of the devices was summarily rejected over the weekend by US District Judge Lucy Koh in San Jose, California.

Razor Risk, TMX, Salmat, Avaya

In other local deals with an international flavour, listed credit risk software maker Razor Risk Technologies has received a $10 million offer from TMX Group, the owner of the Toronto Stock Exchange.

Sydney-based Razor provides credit risk software to clearing houses, stock exchanges and other financial institutions and will provide TMX with a handy point of entry into the risk management sector. TMX, which is the target of a C$3.8 billion proposed takeover by Canada's Maple Group, will pay 3.49 cents apiece for Razor shares. The target last traded at $0.018.

The offer has been unanimously recommended by the Razor board, in the absence of a superior proposal.

Meanwhile, UK’s Assureweb has teamed up with Sydney-based tech firm Omnium to launch the UK’s first insurance comparison application, dedicated to financial advisers who write risk insurance, for the iPhone. The app sources protection quotes from Aviva, Zurich, AEGON,  Bright Grey, Friends Life, Legal & General, LV=, Pru Protect and Scottish Provident.

Elsewhere, local call centre outsourcing heavyweight Salmat has announced a multi-million dollar agreement with IT firm Avaya to upgrade its contact centres in Australia and New Zealand. Salmat chief executive Grant Harrod said the contract was for five years with while the price was not disclosed it is believed to be somewhere between the $10 million to $20 million mark. Avaya will replace Salmat’s previous provider, Genesys and the rollout of Avaya technology will commence across all of Salmat’s contact centres in February next year.

Finally, University of Technology, Sydney (UTS) has selected global intelligence, prospecting and wealth due diligence company, Wealth X, to help boost its fundraising activities.

UTS said in statement that it was leveraging on Wealth-X’s online business solution to screen, identify and engage with ultra high net worth individuals (UHNW) in Australia and Asia, as well as globally for its major giving programs.

UHNW refers to individuals with a minimum net worth of $US30 million. Wealth-X’s World Ultra Wealth Report estimates there are 185,795 UHNW individuals worldwide.

SAP, Yahoo

German giant SAP has taken a major step to accelerate its cloud strategy with the $US3.4 billion acquisition of online software firm Success Factors. The target makes software for managing employee performance and the deal is a clear signal that SAP is not going to sit idly by and let Oracle forge ahead in the space. SAP is paying $US40 a share in cash for each Success Factors share, a multiple of eight times 2012 revenue. Oracle picked up Right Now Technologies for $US1.5 billion six weeks ago at 5.5 times 2012 revenue.

Moving to the situation at Yahoo, the company’s directors may be keen to sell a minority stake to a group but there are reportedly a number of potential takeover bids already on the table. According to Reuters, private equity firms Blackstone Group and Bain Capital are preparing a bid for all of Yahoo with Asian partners in a deal that could value Yahoo at about $US25 billion. That’s slightly better than the $US20.6 billion bid reportedly lobbed by Silver Lake Partners, which is working in conjunction with Microsoft, and TPG Capital. Much of the intrigue about the latest bid speculation revolves around the intentions of Asian players Alibaba Group and Japan's Softbank Corp.

Yahoo has also received two proposals for a minority investment of roughly 20 per cent, one from TPG Capital and one from an investor group led by Silver Lake. According to The New York Times, the bids were close in value, with Silver Lake offering about $US16.60 a share and TPG about $US17.60 a share. Yahoo’s management faces a difficult choice here and there are a number of external parties here with interests tied to Yahoo’s eventual fate. Microsoft wants to make sure that its 10-year agreement with Yahoo remains intact while Alibaba will no doubt be keen to regain possession of the 40 per cent stake Yahoo currently holds.

Just who will get their hands on Yahoo is unclear at the moment but suffice to say the web pioneer is set for a major revamp under a new owner.