Ann: TPG to Acquire iiNet in a Recommended Transaction, page-18

The value for TPG lies in unlocking economies of scale from the infrastructure they own, mainly the submarine cable.

The accounting profit and free cash flow TPG are able to extract out of iiNet will be much higher.

Here are iiNet margins:

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4		Revenue	Net Profit	Margin	FCF	Margin	EBITDA	Margin
5		474,000,000	34,600,000	7.30%	32,500,000	6.86%	76,900,000	16.22%
6		698,000,000	33,400,000	4.79%	50,000,000	7.16%	104,850,000	15.02%
7		830,000,000	37,000,000	4.46%	57,400,000	6.92%	144,840,000	17.45%
8		940,000,000	60,900,000	6.48%	51,808,000	5.51%	187,010,000	19.89%
9		1,005,000,000	63,000,000	6.27%	52,616,000	5.24%	195,630,000	19.47%

Here are TPG margins:

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4		Revenue	Net Profit	Margin	FCF	Margin	EBITDA	Margin
5		446,400,000	-18,900,000	-4.23%	-10,600,000	-2.37%	24,900,000	5.58%
6		481,200,000	17,700,000	3.68%	68,000,000	14.13%	98,500,000	20.47%
7		508,200,000	55,700,000	10.96%	92,600,000	18.22%	171,100,000	33.67%
8		574,500,000	78,200,000	13.61%	101,000,000	17.58%	234,000,000	40.73%
9		663,100,000	91,000,000	13.72%	150,000,000	22.62%	261,406,000	39.42%
10		724,500,000	149,200,000	20.59%	174,500,000	24.09%	293,086,000	40.45%
11	]	970,920,000	171,679,000	17.68%	223,500,000	23.02%	363,700,000	37.46%

Here is a rough calculation of what I thought iiNet would be worth to TPG based on economies of scale:

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4		Revenue	iiNet NP	TPG NP	iiNet margin	TPG margin	FCF iiNet	FCF TPG	iiNet margin	TPG margin	EBITDA iiNet	EBITDA TPG	margin iiNet	margin TPG
5		$1,005,000,000	$63,000,000	$177,705,058	6.27%	17.68%	$52,616,000	$231,345,013	5.24%	23.02%	$195,630,000	$393,050,794	19.47%	39.11%
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