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iiNet Limited and TPG Telecom Ltd set to merge: What you need to know

iiNet Limited (ASX: IIN) is reportedly trying to rally support in the lead-up to its scheme meeting where investors will vote for or against TPG Telecom Ltd’s (ASX: TPM) proposed takeover.

After TPG’s initial bid was topped by an offer made by rival M2 Group Ltd (ASX: MTU), TPG sweetened its proposal, offering investors a total of $9.55 per iiNet share held. That includes an $8.80 cash or scrip component as well as a special fully franked dividend up to 75 cents per share, whereby shareholders who elect to take the $8.80 component in TPG shares will receive 0.969 TPG shares for every iiNet share they hold.

As highlighted by the Fairfax press, iiNet’s board has hired a firm to call shareholders to maximise its chances of overcoming any opposition to the deal which could see the shares plummet in value. A similar strategy was employed by smaller telecommunications rival Amcom Telecommunications Limited (ASX: AMM) when it was trying to rally shareholders to rise against TPG Telecom’s blocking stake in the business to approve a takeover offer from Vocus Communications Limited (ASX: VOC).

Indeed, iiNet’s shares have skyrocketed in value since it received its first takeover offer in March, climbing approximately 40% since that time to trade at $9.54. Although it is estimated that there is little chance of the transaction being rejected, the company is warning that shares could plummet back to the levels recorded in March if it proves unsuccessful.

As quoted by Fairfax, iiNet’s chair Michael Smith said: “Anyone contemplating voting ‘no’ faces a significant risk that the price they’re certain of if they vote ‘yes’ is not going to be available… and there’d be considerable downside risks to this not proceeding.”

A vote will be held on July 27 which will determine the future of each company. Should shareholders approve the tie-up, the combined entity will become the nation’s second-largest broadband provider fit to take on the likes of Optus and Telstra Corporation Ltd (ASX: TLS).

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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