iiNet Limited (ASX: IIN) shares have skyrocketed more than 30% since the telco received a $1.4 billion takeover offer from TPG Telecom Ltd (ASX: TPM) on Friday last week, but not all shareholders are happy. In fact, they're far from it. This state of affairs has been reported in the Fairfax press this morning.
TPG Telecom's takeover offer, which equated to $8.60 per iiNet share, was based on a 33% premium to iiNet's five-day average share price in the lead up to the announcement. While that is a fairly standard premium to pay in a takeover, some of iiNet's largest shareholders are objecting to the price offered based on the enormous synergies that will be recognised by TPG Telecom should the deal go ahead.
Price too low
By merging the two telecommunications companies together, TPG Telecom's broadband subscriber base would balloon out to over 1.7 million customers, rocketing past Optus (which is owned by Singapore Telecommunications Ltd (CHESS)'s (ASX: SGT)) as Australia's second largest broadband provider. The deal would also enhance TPG's national presence and deliver it scale benefits in an NBN (National Broadband Network) environment.
iiNet's Board of Directors unanimously backed the offer, stating that it represented a "significant reward for shareholders who have shown their faith in iiNet", but the shareholders themselves are far less optimistic. As quoted by the Fairfax press, BT Investment Management, which is iiNet's biggest institutional shareholder said: "The prize of significant synergies needs to be shared with iiNet shareholders: the current bid does not reflect that."
Fairfax also reported that the shareholders are upset about the company's communications with them. While Boards normally contact major shareholders prior to agreeing to such arrangements and explain the rationale of the deal, most of them have been kept in the dark until now.
What happens now?
Given that the deal must be approved by iiNet's shareholders to go ahead, the opposition of some of its major shareholders could certainly derail the sale. Then again, it could also set the stage for a higher offer from TPG Telecom, or another party such as Optus or M2 Group Ltd (ASX: MTU). That's why iiNet's shares are currently trading more than 3% above the initial offer price of $8.60.
