New Bid M2 all script, page-15

(1) the lack of tangible value the offer represents, e.g. $1.6 billion. I did not read every word in detail, but I skimmed them looking for the the takeover value and I could not find it anywhere.

(2) I'll give you a hint - it's on iiNet's balance sheet. Also, don't forget the 3 letters I, R, U.

(3) Pretty good for MTU shareholders, but not so good for IIN shareholders IMO - MTU is a dog's breakfast. A strategy of constantly taking over company after company will see them come up short one day. The Internet industry booming, data-hungry customers who can't get enough bandwidth for Netflix, cheap credit, what would possibly go wrong? Borrow, borrow, borrow... and takeover as many companies as you possibly can. It's a brilliant strategy, nothing could possibly go wrong because there is no way margins will ever compress.

(4) See above. MTU do not own the infrastructure to compete in a post-NBN world. Watch what happens to their margins as customer demand for data surges with Netflix. MTU being a mere reseller have to pay the big boys for every Gigabyte (GB) of data. As customers demand GB after GB down their copper wires to stream the latest hit(s) on Netflix, MTU are also paying for every GB downloaded.

No economies of scale. They take on more customers, their variable costs go up, they gear the balance sheet. Margins compress, credit goes up... Ouch.

My view on the sector at the moment is that margins are going to compress a little with data-hungry customers. Companies that lack the fibre infrastructure nationally, and submarine cables internationally are going to be hardest hit by this.

Look at M2 margins:

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
0	{colgroup}
1	{col=65x@}{/col}{col=95x@}{/col}{col=102x@}{/col}{col=99x@}{/col}{col=140x@}{/col}{col=95x@}{/col}
2	{/colgroup}
3		Revenue	Net Profit	Margin	FCF	Margin
4	2010[/COLOR][/FONT]	406,100,000	16,200,000	3.99%	13,306,000	3.28%
5	2011[/COLOR][/FONT]	426,800,000	27,700,000	6.49%	23,178,000	5.43%
6	2012[/COLOR][/FONT]	392,700,000	33,000,000	8.40%	24,654,000	6.28%
7	2013[/COLOR][/FONT]	680,000,000	44,100,000	6.49%	29,230,000	4.30%
8	2014[/COLOR][/FONT]	1,022,800,000	67,000,000	6.55%	46,004,000	4.50%