iiNet to buy Internode for $105m

Stuart Corner
Thursday, 22 December 2011 15:57

IT Industry - Deals

iiNet (ASX: IIN) is to acquire Australia's largest privately owned ISP, Internode for $105m.

Internode's sole shareholder, Simon Hackett, will receive 12 million iiNet shares (7.5 percent of the combined entity) and the balance, net of Internode debt, in cash. The deal is expected to be completed by the end of February.

iiNet said that Internode would trade as a separate business unit, retaining its brand under the management of Hackett and his team.

Adelaide based Internode has approximately 260,000 active Internet and phone services, including approximately 190,000 broadband subscribers, of which 15,000 are off net and expected to migrate to iiNet's networks. The company is expected to achieve FY12 revenue of approximately $180m and EBITDA of $25m.

iiNet expects synergies to contribute incremental EBITDA of $7 million in FY13, and said that $105 million acquisition price represented a 4.2x expected pre-synergies FY12 EBITDA multiple and a 3.3x post-synergies pro forma EBITDA multiple.

iiNet said there would be significant synergies available from the off-net to on-net migrations, integration of bandwidth, backhaul, inter-capital transmission and other supplier contracts and systems.

The Internode DSLAMs will extend iiNet's DSLAM footprint to a further 36 exchanges. Internode has active DSLAMs in 202 exchanges, plus four built in NT and awaiting backhaul installation and a further two planned

iiNet CEO, Michael Malone said: "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."

Hackett has agreed to standstill and tender provisions with iiNet for a period of 12 months from the date of completion. The standstill provisions prevent him from acquiring or soliciting a shareholding in iiNet greater than 7.5 percent of its issued capital.

Under the tender provision 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 will be funded by the extension of iiNet's existing bank financing facilities to $300 million, and will leave it with net debt of about $250m.