TPG ups bid for iiNet

TPG Telecom has made its counter-play for iiNet, upping its bid to $9.55 (comprised of $8.80 in cash plus a special dividend of $0.75) from the previous $8.60.

The bid addresses some of the concerns of iiNet shareholders by incorporating the special dividend as well as a share alternative (of 0.969 TPG shares per iiNet share, subject to a maximum of 27.5m new TPG shares being issued).

The share alternative will enable some shareholders to defer capital gains tax, but following yesterday's rise in TPG's share price it is now worth a few cents more than the cash proposal, so that cap – equivalent to about $250m – may be quickly reached in the $1.6bn deal.

Finely judged

The offer is finely judged – so finely in fact that it comes in below the $9.67 previously offered by M2 Group (as at yesterday's close), and some shareholders apparently still regard it as inferior, according to the AFR.

The iiNet board has backed the new offer because of the certainty provided by TPG's cash. Presumably it believes the entire Telecoms sector is highly valued by the market at current prices, and we wouldn't disagree. The offer is subject to a number of conditions, however, including a go-ahead from the ACCC, which is looking into the deal and asked for submissions by 30 April. Most importantly, though, of course, it will be up to shareholders to decide if they wish to proceed.

The flip-side of being so cute with the price, though, is that a small increase in M2's offer would make this 'certainty of cash' argument untenable; and TPG would find a more sizeable increase hard to match – at least without looking a little churlish – after only offering the bare minimum twice already. iiNet's share price of $9.72 suggests the market doesn't expect any big raises, but only time will tell.

Sideshow

In a sideshow to the battle for iiNet, TPG has upped its stake in Amcom Telecommunications to 18.6% and declared that it will vote against the latter's proposed merger with Vocus Communications. Amcom and Vocus have cried foul and referred the matter to the ACCC, as well as adjourning their merger scheme meeting until 18 May.

While iiNet is clearly the first prize, one or both of these companies could provide a consolation for whoever misses out (although TPG has said it has no intention of making a counter-proposal for Amcom).

We'd recommend that shareholders in TPG, iiNet and M2 Group maintain a watching brief while all this plays out and HOLD.