A$1.6b Acquisition by TPG Telecom by Scheme of Arrangement

August 2015

On 13 March 2015, iiNet Limited (“iiNet”) and TPG Telecom (“TPG”) announced they had entered into a Scheme Implementation Agreement to acquire the iiNet shares that TPG does not own, by way of a scheme of arrangement (“Original TPG Proposal”). Under the Original TPG Proposal, iiNet shareholders would receive an all cash consideration of $8.60 per share.

On 6 May 2015, following the receipt of an alternative competing proposal from M2 Group Ltd (“M2″), iiNet and TPG announced that they had reached an agreement on the terms of an improved proposal by TPG and had entered into a revised Scheme Implementation Agreement reflecting the improved proposal (“Scheme”). Under the improved Scheme, iiNet shareholders would receive a total consideration of at least $9.55 per share.

A key feature of the Scheme was the ability for iiNet shareholders to elect to receive their scheme consideration in cash or in TPG shares (subject to a cap). The total consideration paid to iiNet shareholders also included a fully franked special dividend of $0.6914 per iiNet share that provided those Australian tax resident shareholders some additional benefit from the franking credits attached to the special dividend, subject to their personal tax circumstance.

The total consideration of at least $9.55 per iiNet share (excluding the additional potential benefit of franking credits), represented:

  • 40% premium over the closing price of iiNet shares on the 12 March 2015 of $6.81;
  • 45% premium over the 30 day VWAP of iiNet shares on the ASX up to and including 12 March 2015 of $6.58;
  • CY14 EV/EBITDA multiple of 10.0x, a significant premium to multiples paid in recent comparable change of control transactions for consumer fixed line telecommunications businesses; and
  • CY14 PE multiple of 23.8x, a materially higher multiple than iiNet’s historical trading levels.

On 27 July 2015, iiNet shareholders voted in favour of the scheme, with 95.09% voting for compared to 4.91% voting against the resolution, representing a total of 105,823,861 shares voted at the meeting.

On 20 August 2015, the ACCC announced that it would not oppose TPG’s proposed acquisition of iiNet.

On 21 August 2015, the Federal Court of Australia approved the scheme of arrangement.

The Scheme brought together two of Australia’s iconic ISP challenger brands and the clear outperformers of the telecommunications sector over the last 5 years. The combination of iiNet and TPG will see both brands running alongside each other on TPG’s impressive national telecommunications infrastructure network, which will provide substantial benefits for customers of the combined group.

Azure advised iiNet, a longstanding client, on all aspects of the scheme, including the assessment and valuation of each proposal from TPG and M2, defence tactics and negotiation of the Scheme Implementation Agreement, as well as assisting with iiNet shareholder, ACCC and Court approvals and completion.