In a big deal that is set to churn up the Internet landscape in Australia, Internet service provider TPG Telecom has announced its plan to buy 100% of its competitor iiNet. TPG Telecom Ltd. has agreed to buy iiNET Ltd. at 1.4 billion Australian dollars (US$ 1.0 billion) making a deal that would more than double its broadband subscriber base to over 1.7 million customers and broaden its footprints across Australia, where a government-led project to roll out a national high-speed broadband network is underway.
This acquisition of companies coming together is sure to be a threat to the Australia’s largest broadband provider, Telstra. iiNet directors are backing up the scheme which involves TPG purchasing the iiNet shares for A$8.60 which is higher than the highest trade price of A$8.36 in December. The final decision regarding the purchase will be taken by shareholders at a meeting in June.
TGP does not plan to merge both the business, it intends to run the businesses seperately using iiNet to target premium customers who are ready to pay more for better service and connections, also keeping its core brand as a low-cost alternative. Through this association, the company tries to penetrate into the small and medium scale enterprises, building on its existing corporate focus on big business and government clients.
The customer service-oriented iiNet has 950,000 broadband customers at July 2014, in relation to TPG’s 748,000 users. When merged the companies would have more than 1.7 million subscribers to provide broadband to. For comparison, Telstra has 3 million retail fixed broadband customers, while the second largest provider, Optus sits at 988,000. The companies are fighting for a major slice of more than 12 million Australian Internet subscribers.
Due to the dominance of the combined TPG and iiNet force in the market, the Australian Competition and Consumer Commission will launch a public review into the proposed merger.
The agreement comes just months after Vocus Communications Ltd., which owns a fiber telecommunications network in Australia and New Zealand, said it intended to buy Amcom Telecommunications Ltd. in an all-share deal.
“The merger between TPG and iiNet has strong strategic logic,” said Citigroup analyst Justin Diddams, citing likely cost improvements and benefits of scale. Still, he didn’t rule out a counter offer. “This transaction would move TPG into the No. 2 position in the fixed broadband business,” he said. “We believe Optus, as the current No. 2 player in fixed-line, would also be interested in the potential scale benefits provided by iiNet.” Optus is a unit of Singapore Telecommunications Ltd., and is second to Telstra, which controls Australia’s largest fixed-line network.