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iiNet to unbundle ihug

MEDIA RELEASE DATE: 20 JULY 2006

iiNet to unbundled ihug

iiNet Limited (ASX: IIN) today announced that it has initiated a formal sales process for its New Zealand ISP business, ihug.

iiNet Executive Chairman Peter Harley said the decision had been made following a large number of unsolicited approaches to purchase ihug.

Mr Harley said that the Board of iiNet has decided to take advantage of the opportunity to realise an enhanced value for the business in the light of recent favourable regulatory decisions and the improved trading performance of the business.

He said that the capital from the sale would be applied to funding further growth of the business in Australia and reducing gearing levels.

iiNet has appointed Grant Samuel in Auckland to manage the sale process. An Information Memorandum will be distributed at the end of July to potential purchasers and it is expected that the process will be completed by the end of 2006.

Keith Goodall, iiNet director and ihug chairman, said ihug was well placed to take advantage of the more favourable trading conditions following the Government’s recent unbundling decision and expects the ihug sale will attract strong interest from a number of prospective purchasers.

“We expect considerable interest in ihug from private equity investors in New Zealand and abroad”, he said.

“Ihug is particularly well placed to take advantage of the changing regulatory environment. Over the last 12 months the new management team has overhauled the product line up, re-energised the brand, and reduced operating costs. The business is performing well and is growing solidly.

“As New Zealand’s largest wholesaler of ADSL broadband, ihug has the scale to take advantage of local loop unbundling and has already announced its intension to deploy its own network once access to Telecom’s exchanges is permitted. This combined with ihug’s strong consumer brand should make ihug a very attractive proposition.”

ihug was established in 1994 and expanded into Australia in 1998. iiNet acquired the Australian and New Zealand operations which were of similar size in 2003. The Australian operation has since been integrated under the iiNet brand, while the New Zealand business has continued under the highly regarded ihug brand.

With over 120,000 services, ihug is now the third largest ISP in New Zealand, behind Telecom New Zealand’s xtra and Telstra Clear and the largest wholesaler of ADSL broadband. ihug - voted New Zealand's no.1 internet provider! (TUANZ 2005, Netguide 2006)

ENDS

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