iiNet in merger talks with iHug

iiNet has announced it has commenced merger negotiations with New Zealand's third-largest ISP, iHug.

The Western Australia-based ISP released a statement to the Australian Stock Exchange (ASX) on Monday confirming recent media speculation that it was in discussions with iHug to merge the two companies.

Although financial conditions of the proposed merger have not been disclosed, a report from the West Australian newspaper dated 16 August 2003 claimed the deal would cost between $21 and $30 million. The figure was derived from the cost of acquiring iHug's approximately 150,000 customers, valued at between $125 and $150 each.

But according to the official iiNet statement, those figures are "not reflective of the price applicable to a substantial ISP".

"iiNet will not comment further on media speculation on pricing or other terms," the statement reads.

IiNet hinted at its merger talks with iHug in its end of year preliminary financial report to the ASX on 6 August, stating that it was currently in discussion "with a significant ISP".

The ISP today said that as foreshadowed in its previous announcement, "iiNet anticipates that a mix of iiNet shares and cash will be used as the consideration for any transaction. iiNet will need to raise capital to complete any transaction."

According to its financial statement, iiNet currently has cash assets of around $8.5 million, with a total contributed equity value of just over $14 million.

The decision to merge with iHug follows several ISP acquisitions made by iiNet over the past 12 months. These include the purchase of Australian ISPs Tassie.net and Ruralnet earlier this year.

IiNet currently has around 132,000 customers nationwide.

In his response to questions from PC World, iiNet managing director Michael Malone said he was unable to provide any further information on the merger at this stage.

iHug managing director Martin Wylie was more forthcoming, saying iHug had been looking for investment for some time and had held talks with iiNet in the past. For various reasons however, the talks had amounted to nothing.

Wylie said the new deal will see current shareholders in iHug, notably co-founders Tim and Nick Wood along with CallPlus managing director Malcolm Dick, retain their share levels, transferring them to iiNet stock instead.

- Paul Brislen from IDG New Zealand contributed to this report.

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