iiNet’s acquisition of Internode has caused a great deal of contention among Australian consumers, but it’s too early to determine the true effects of the deal.
The deal was revealed late last year, mere days before Christmas - the 22nd of December to be precise. Under the terms of the deal, iiNet will acquire 100% of the shares in both Internode and its sister company, Agile. The deal will cost iiNet a total of $105m in cash and shares. The sale is expected to be completed by 29 February 2012.
According to Internode, both Internode and Agile will continue to operate as separate business units within the group, each retaining their existing staff and offices.
Internode’s current staff, including founder Simon Hackett, will continue on with the company. As part of the deal, Hackett will pocket a 7.5 % equity stake in the iiNet group, making him a Significant Shareholder in the listed company.
Often in such a merger, the absorbed company inherits the philosophies and values of the parent company.
In this case, some Internode customers are worried that iiNet’s standards of service (which said customers believe to be lower than what they currently receive) will be passed down onto Internode, resulting in lower quality services for ’node customers (as reported by Delimiter).
Guy Cranswick, analyst at IBRS, said that in such a merger, the adoption of the parent company’s philosophies by the child company is “inevitable”.
“iiNet will certainly set new terms of business and customer relationships in its way,” he said.
As a result of such changes, “Some Internode customers may leave - and in some numbers - but overall I'd expect any churn as a result to settle and, as iiNet is a marketing-led ISP, [it will] be able to deal with such transitional disruption,” Cranswick said.
There is, of course, the question of how well founded such claims are about the service of Internode vs iiNet. As Hackett himself pointed out on broadband discussion forum WhirlPool, independent Roy Morgan surveys suggest that the two companies have very close customer service records (91% iiNet customers report being “Very or Fairly satisfied”; 96% for Internode).
The reality of “synergy”
In describing the takeover, Hackett focused on the supposed complementary nature of the two companies.
“There’s great synergy between iiNet and Internode. iiNet operates in complementary geographic areas, it maintains compatible technologies and it has a strong cultural fit,” he said.
Michael Malone, iINet CEO, mirrored that sentiment, saying: “This acquisition will deliver significant network and technical assets, while increasing iiNet’s presence in the South Australian, Tasmanian and eastern seaboard markets. It will also accelerate our penetration into the enterprise, government and small business sectors, which are a key strategic focus for us.”
But there is also overlap between the two companies: Internode and iiNet have long competed in various broadband arenas.
This begs several questions: what will happen to these parts of Internode’s business that encroach upon iiNet’s territory? And what will the effect of the merger be on the local market?
As IBRS’s Cranswick said: “All mergers or takeovers, depending on your perception, are sold as marriages of equals - but they are not, and never are after about three to six months. Internode got bought and that means iiNet sets the terms.
“However, I see iiNet being a well-run organisation, and not about to wreck a good deal,” Cranswick said.
On top of that, the deal has only just been announced, and it’s far too early to determine what will change.
“The settlement of competitive areas will be done over time. It’s hard to say how or what might be at risk because that is just speculation at present,” Cranswick said.
Editor's note: Voice+Data has contacted Internode's Simon Hackett - currently “on holiday” - for comment. This story will be updated.