TPG Telecom is buying iiNet in a cash deal worth about $1.4 billion which will create another major player in Australia’s telecommunications industry.

iiNet shareholders will get $8.60 per share, a hefty premium to yesterday’s closing price of $6.81. It’s about one-third better than the average share price over the last month and values iiNet higher than it has ever traded.

The combined companies will have 1.7 million customers, revenue of $2.3 billion and staff of about 5,200.

Michael Malone, who founded iiNet in Perth 20 years ago, stepped down as CEO one year ago. He’s been selling down his shares but is said to still have a stake of just under 5% which under this deal would be worth around $60 million.

iiNet has made good penetration in areas with newly installed faster internet through the NBN. It has 60,000 NBN and fibre subscribers.

The deal, revealed in a joint TPG Telecom and iiNet announcement, dwarfs the merger of small telco players Vocus and Amcom which is valued at $650 million.

iiNet Chairman Michael Smith said: “The board views this as a significant reward for shareholders who have shown their faith in iiNet. The price of $1.4 billion is a very tangible measure of the value that the extraordinary people of iiNet have created through their innovation, brilliant service and capacity to add value.”

David Teoh, Executive Chairman and CEO of TPG, said iiNet and TPG are highly complementary businesses in terms of geographic presence, market segments and corporate customer base.

The deal includes a dividend to iiNet shareholders of $0.105 per share due to be paid on Monday.

iiNet, with 2,500 staff, provides more than 1.9 million broadband, telephony and IPTV services to more than 975,000 broadband customers

No details of synergies have been released but the companies say combined customer numbers will deliver scale benefits in the NBN business environment.

TPG provides a more value-based offering while iiNet offers a more premium, customer service-led service.

The companies say they have complementary corporate customers, with iiNet strong among small to medium busiensses and TPG focused on corporate and government clients.

iiNet recorded revenue of $547 million, up 11%, for the first half to the end of December. Net profit was $32 million. It added 25,000 new broadband customers in those six months.

Last financial year, TPG posted revenue of $970.9 million, up 34%. Net profit was $171.7 million. It had 748,000 broadband customers and 477,000 home phone customers.

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