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Delay in the Merger of TPG Telecom and iiNet

Delay in the Merger of TPG Telecom and iiNet
Jun 12, 2015 By Imran Valibhoy

TPG Telecom’s (ASX: TPM) merger with iiNet (ASX: IIN) may be delayed as the companies wait on a decision by the Australian Competition and Consumers Commission. The ACCC said the $1.56 billion takeover may substantially lessen competition in the broadband market.

TPG Telecom launched an all cash $1.4 billion takeover bid for iiNet in March however the bid was countered by a higher scrip based offer from M2 Group for $1.5 billion. Shareholders initially showed positive sentiment towards the TPG offer however later decided the offer was too low and showed favour towards the offer from M2 Group. TPG has since countered with an increase to their initial bid to $1.56 billion, offering an option of shares or cash which was then recommended by iiNet’s board.

The merger of TPG Telecom and iiNet would create Australia’s second largest provider of fixed-line broadband services behind Telstra and ahead of Optus and M2 which owns Dodo and iPrimus. This has led to a concern from the ACCC who believes the merger could raise competition concerns and has scheduled a verdict for August 20, which is weeks after the deal is meant to be voted on by shareholders.

"The ACCC's preliminary view is that the acquisition of iiNet may lead to a substantial lessening of competition, potentially resulting in higher prices and/or degradation of the non-price offers available in the market, including customer service," the regulator said in its report.

The national broadband network is likely to allow more competition into the market and with the review showing no red flags, backed with a positive initial view from the ACCC, the verdict seems encouraging for TPG.

In a view shared by TPG, we at Wise-Owl recognised that iiNet was trading at a discount and recommended a buy in March last year, which has since resulted in a healthy profit.

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Imran Valibhoy Author: Imran Valibhoy Jun 12, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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