iiNet buys Internode

  • iiNet protecting position in light of rising TPG stake
  • Similar customer service and tech savvy ethos
  • Allows both firms to take advantage of upcoming NBN seachange

After circling each other in the carrier-grade market for years, iiNet have made a surprise pre-Christmas move and acquired Adelaide-based ISP Internode, in a bid to shore up both companies ahead of the National Broadband Network rollout, and rising rumors of a TPG buyout of iiNet.

Recent public statements from iiNet CEO Michael Malone have targeted Internode founder Simon Hackett, suggesting Hackett should have “cashed out” in 2010, when the sector was still in “land grab mode”. His comments may be now construed as a way of softening Internode’s position in a buyout, suggesting that Internode’s adventure as the mid-sized champion has come to an end.

What will this mean for Internode and its customers?

Hackett will stay on as Internode’s managing director, which will trade independently for the time being- suggesting that the buyout was amicable as well as practical. iiNet and Internode have been viewed for some time as sharing a similar customer service and tech-savvy ethos. Hackett released a statement today explaining the logic behind the deal:

"With the maturing of the broadband market, Australia is entering an era where the NBN will drive market economics and, in that environment, scale wins. By merging with iiNet, Internode gains access to economies of scale that will ensure its broadband services remain superbly capable and competitive in a market where the major companies will be competing fiercely for customers."

What will this mean for iiNet and its customers?

Malone has released his own statement on iiNet's blog:

"For iiNet, the acquisition means increasing the number of services significantly. It also means an expanded presence in South Australia and other eastern states.

"We’ll be making the most of the acquired network architecture so we’ll be migrating both iiNet and Internode off-net customers in either direction onto our larger pool of on-net ports.

"The addition of Internode's 190,000 customers, including a number of valuable corporate and government clients, strengthens iiNet’s position as the second largest DSL broadband provider in Australia."

Though little will change in the immediate future, soon both iiNet and Internode's existing customers will be able to enjoy new services, and possible lower prices.

The deal was closed for $105 million in a mixture of cash and shares, with Hackett obtaining a 7.5% equity stake in iiNet – roughly equivalent to competitor TPGs own steadily rising stake. Rumors have been swirling for the last two quarters that TPG may be poised to take over iiNet, a possibility which seems slightly more remote with today’s news.