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ihug Inks Agreement with Australia’s iiNet

ihug Inks Agreement with Australia’s iiNet

ihug today announced that it has signed a sale and purchase agreement with ASX-listed Australian ISP, iiNet Limited (ASX: IIN).

Under the agreement iiNet will purchase ihug Limited, The IP factory Limited, and the operating assets of The Internet Group Limited, including the “ihug” brand name for a total consideration of A$30.1 million in cash and 23.7 million shares in iiNet, at an issue price of A$1.75 per share. Shares in iiNet last closed at A$2.50 on the ASX.

While the companies have completed due diligence the transaction is still subject to regulatory and iiNet shareholder approval. A meeting of iiNet shareholders has been called for 17 October 2003, with a proposed completion date of 21 October.

“Due to the relative size of the two businesses, we are treating this transaction as a merger,” says iiNet Chairman, Peter Harley. “It will make iiNet the fifth largest ISP in Australia and ihug the third largest in New Zealand.”

“This transaction will benefit iiNet shareholders in several ways. We expect it to improve iiNet’s earnings per share before amortisation of goodwill, as ihug currently has an annualised pro-forma EBITDA of $17.8 million. Over time we expect to further enhance the profitability of ihug’s Australian operations by migrating subscribers to iiNet’s infrastructure. We also see further benefits in applying ihug’s profitable telephony business to iiNet’s customer base.

“Furthermore, as a result of the associated capital raising iiNet will have a strong balance sheet post transaction to pursue further growth and innovation.”

ihug Chairman, Keith Goodall, Auckland chartered accountant and company director, will be appointed to the Board of iiNet at the shareholder meeting.

“Customers of ihug whether in New Zealand or Australia will also benefit from the merger,” said ihug Chief Executive, Martin Wylie. “Throughout our discussions iiNet’s management team has made evident the value that they place on ihug’s strong brand and relationship with its customers. Those customers can rest assured that, under the new structure, and backed by iiNet’s strong balance sheet, ihug will be able to continue its tradition of bringing innovative products and services to market.”

iiNet currently has over 130,000 current subscribers and is one of the top ten ISPs in Australia, generating revenues of A$40 million for the 2003 year and reporting a net profit after tax of A$5.2 million. ihug has over 170,000 current subscribers in New Zealand and Australia and generates annual revenues in the order of $48 million.

The combined base of 300,000 current subscribers is distributed in almost equal thirds between Western Australia, Eastern Australia and New Zealand. ihug’s 70,000 current subscribers in Australia are located primarily in Sydney, Melbourne and Adelaide. This complements iiNet's strong presence in Western Australia, Tasmania, regional Victoria, Australian Capital Territory and Northern Territory.

About iiNet
Founded in Perth, Western Australia in 1993, iiNet has grown organically and through selective acquisitions to the point where today it has 130,000 current subscribers in Australia, up from 72,850 12 months ago. It is the second largest provider of DSL services in Australia. For the 2003 year iiNet generated revenues of $40 million, up 54 percent from the previous year. The Company reported a net profit after tax of $5.2 million and paid a final dividend of 4 cents per share.

About ihug
Founded in 1994 privately owned ihug is one of Australasia’s largest Internet Service Providers. The company has 170,000 current subscribers across broadband, dial-up and telephony products in New Zealand and Australia. It also provides wholesale broadband and satellite access and web services to telecommunications operators and ISPs in both countries. The company has achieved its position from a culture of continuous innovation, which includes New Zealand’s first flat rate Internet access plans, high-speed satellite access and telephony services.


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