Internet service provider M2 Telecommunications has sparked a bidding war for iiNet, coming in with a higher, all-scrip offer than TPG's March offer of $1.4 billion.
M2's play at iiNet today offered $11.37 per share, giving the company an enterprise value of $2.25 billion. Excluding $1.37 per share of estimated synergies, the deal sits around $1.6 billion.
TPG in March offered to take over iiNet in an $1.4 billion all-cash deal.
M2 today said it would operate iiNet as a standalone brand, and had extended an offer for two iiNet directors to join its board, should the deal go through.
It also said it believed it could achieve EBITDA synergies of $60 million annually by combining M2 and iiNet.
"M2 intends to operate iiNet as a standalone brand that would be nurtured and grown under the M2 umbrella," it told investors today.
"M2 fully recognises the value of different brand strategies and intends to leverage the strength of the iiNet brand and its customer ethos."
It pointed to its acquisitions of Primus and Dodo as examples of its ability to maintain individual brands.
"In each of those cases, M2 has .. grown each brand's customer base and product offering and has extracted meaningful synergies along the way. M2 expects to achieve a similar result with iiNet," it said.
The all-scrip nature of the offer means iiNet's board will need to determine the value of M2 shares before making a decision on whether to recommend the deal to its shareholders.
iiNet today said it had engaged with M2 to negotiate terms, transaction documentation and undertake due dilligence - which it was still in the process of completing.
M2 and TPG are now in a race to take over iiNet in order to create the country's second largest fixed broadband provider behind Telstra.
TPG's offer included a provision that iiNet notify TPG if it receives any competing offers.
If the iiNet board deems the M2 offer a better deal, TPG would then have three days to make a counter offer.
iiNet today said it had notified TPG of M2's bid.
"iiNet will keep the market informed as appropriate, including whether a relevant notice has been issued to TPG providing them the opportunity to revise their original proposal to meet that received from M2," the company said in a statement today.
"Once the iiNet's board recommendation has ultimately been determined, iiNet will provide full details to the market of the basis for its recommendation."
TPG's bid has received an unfavourable response from a number of shareholders and investors - including founder and former CEO Michael Malone - who have criticised the board for a lack of communication and urged it to test the market for a better bid.
M2 just last fortnight announced it would buy out NZ ISP CallPlus for $250 million.
The combined group would boast a broadband customer base of 1.7 million and annual revenue of $2.5 billion.
TPG and M2 have both been contacted for comment.