iiNet Limited is to acquire Internode Pty Ltd and associated companies, Australia’s largest privately owned broadband services company, for $105 million. Based in South Australia, Internode has approximately 260,000 active Internet and phone services, including approximately 190,000 broadband subscribers.

 

iiNet’s Chief Executive Officer, Michael Malone, said the acquisition strengthens the company’s position as the leading challenger brand and “the new number 2 provider” of DSL broadband.

 

“Internode is an attractive acquisition, consistent with our strategy of building scale in anticipation of the national broadband network (NBN) market. Internode’s experienced management team and excellent customer satisfaction record will allow iiNet to efficiently grow its presence in the South Australian and Eastern State markets.”

 

“Internode is a successful company with an impressive reputation,” said Mr Malone. “The two companies are clearly a good fit with their strong cultural alignment, industry-leading customer service and shared commitment to innovation.”

 

Internode will trade as a separate business unit, retaining its brand under the management of founder Simon Hackett and his experienced team.

 

Simon Hackett, Managing Director and the largest shareholder of Internode, said the merger was “a unique opportunity to increase our presence nationally.”

 

"We have highly compatible business approaches, unrivalled excellence in innovation around networks, technology and content, and we gain the obvious benefits of substantially increased scale".

 

Simon Hackett will receive a placement of approximately 12 million shares in iiNet, or 7.5% of the fully diluted capital of iiNet. The balance, net of Internode’s existing debt, will be paid in cash upon completion, which is expected by 29 February 2012.

 

Simon Hackett has agreed to standstill and tender provisions with iiNet for a period of 12 months from the date of completion. Under the standstill provision, Simon Hackett (and affiliates) is prevented from acquiring or soliciting a shareholding in iiNet greater than 7.5% of its issued capital. Under the tender provision, Simon Hackett has agreed to tender his (and affiliates) shareholding in iiNet into any takeover offer, scheme of arrangement or other merger recommended by a simple majority of the iiNet board.

 

The acquisition of Internode is subject to a number of procedural conditions and will be funded by the extension of iiNet’s existing bank financing facilities to $300 million.

 

The acquisition of Internode is expected to be earnings per share accretive pre-synergies in FY13. Synergies generated through on-net migration, and integration of bandwidth, backhaul, and inter-capital transmission capacity will provide further value accretion for iiNet shareholders.