News that found and former long-time CEO, Michael Malone has sold more than $8.4 million worth of shares in iiNet Limited (ASX: IIN) could see the company become a takeover target.
According to the Australian Financial Review (AFR), Mr Malone now owns less than 5% of the company he founded in his parent's garage more than 20 years ago. iiNet began as a small Perth internet provider, but has grown organically and through acquisitions to become one of Australia's largest listed internet service providers, with around 1 million customers and revenues rapidly closing in on $1 billion.
Over the past ten years, the company has delivered a total shareholder return of 13.1% on average each year, with the last few years accelerating, thanks to acquisitions and new products.
In the last half, iiNet reported revenues of $493 million, and an underlying net profit of around $31 million. Full year earnings per share are forecast at around 41 cents, representing a P/E ratio of around 17 times – and looking much cheaper than rival TPG Telecom Limited (ASX: TPM) on a forecast P/E of 24 times.
And that cheaper price could see the likes of Optus – owned by Singapore Telecommunications Ltd (ASX: SGT), M2 Telecommunications Ltd (ASX: MTU) or even TPG Telecom mount a takeover or merger of equals with iiNet. Telstra Corporation Ltd (ASX: TLS) would have to be ruled out, given the Australian Competition and Consumer Commission's (ACCC) issue with the company's attempted $60m takeover of the much smaller Adam Internet.
iiNet ended up buying Adam Internet instead, for $60 million in August 2013, as the sector continues to consolidate. The problem for iiNet is that now Mr Malone has sold out, buyers may come out of the woodwork, looking for further consolidation in the Australian telecommunications industry. There's no guarantee that it will happen of course, but the risk has just risen…
