M2 this morning confirmed that it is seeking to acquire iiNet. The move puts the telco in direct competition with TPG to acquire the ISP.
M2 said in an ASX statement it had not intended to initially release publicly the proposal but had done so in response to media reports.
Under the proposal, iiNet shareholders would receive .803 M2 shares per iiNet share ($9.25 per share at M2's closing price on 24 April). They would also receive $0.75 cash per iiNet share. In addition, M2 estimated synergies of $1.37 would accrue to iiNet shareholders.
iiNet shareholders would end up owning around 42 per cent of M2 post-merger under the proposal, which implies an enterprise value for iiNet of $2.25 billion.
Under TPG's proposal, iiNet shareholders would receive $8.60 per share, compared to the $11.37 (including synergies) per share that M2 is offering in total.
As with TPG's proposal, the iiNet brand would be retained.
"M2 intends to operate iiNet as a standalone brand that would be nurtured and grown under the M2 umbrella," M2's ASX statement said.
"M2 fully recognises the value of different brand strategies and intends to leverage the strength of the iiNet brand and its customer ethos."
The telco cited its acquisition of Commander, Primus and Dodo as examples of its ability to integrate brands into the group and grow their customer base.
Two iiNet directors would be invited to join M2's board.
M2 announced earlier this month it intended to acquire New Zealand ISP Call Plus for $245 million.
TPG's move to acquire iiNet is subject to scrutiny from the Australian Competition and Consumer Commission.
TPG announced its $1.4 billion takeover bid last month. The acquisition would boost TPG's broadband customer base to more than 1.7 million.
Under the agreement with TPG, if the iiNet board believes M2's offer to be superior they must notify TPG. TPG will then have three days to match the offer.
iiNet's board is currently assessing M2's proposal.
"The iiNet board is still in the process of completing its due diligence enquiries on M2 and is still in discussions with M2 on the terms of the proposed scheme implementation agreement," a statement issued by iiNet said.