Ihug parent banks on $16 million PowerTel deal as Aussie share price crashes

iiNet sees its shares nose-dive after almost halving its earnings forecast

Ihug’s parent company, Perth-based iiNet, has entered into a strategic alliance with business and wholesale telecommunications provider PowerTel, in a cash deal worth almost A$14 million (NZ$16.6 million).

Under the deal, PowerTel will be issued with approximately 16.36 million shares in iiNet, for 85¢ each. A second tranche, of 3.76 million shares, is conditional on certain “operational agreements” between the two parties. For the second tranche to be concluded, iiNet’s share price must not trade below 75¢ for ten consecutive days before issue.

IiNet’s managing director, Michael Malone, says the deal with PowerTel will enable alternate providers to compete with Telstra and Optus in Australia without having to build a network.

However, the Australian stock exchange has overlooked the PowerTel deal and has, instead, taken a dim view of iiNet’s revised earnings guidance. In its new guidance, iiNet says it expects earnings of A$24.6 million this financial year, instead of the A$40 million originally forecast.

The revised forecast saw iiNet’s stock fall by half when trading resumed to 85¢ a share — the same as paid by PowerTel. Heavy trading resulted as investors sought to offload shares. The share price recovered slightly, to 90¢ last week.

Late last week, Amcom Telecommunications advised the ASX that it had acquired a 20% stake in iiNet. Amcom paid 83¢ a share for a total of A$18.3 million.

The stock purchase, obtained on the open market, makes Amcom iiNet’s largest shareholder.

Operating out of Perth and Adelaide in West and South Australia, Amcom has over 800km of fibre-optic network in metro areas of both cities.

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