Internet service provider iiNet is giving TPG Telecom until next week to increase its takeover bid, as rival suitor M2 Group considers making a better offer.
M2 Group, which owns Dodo and iPrimus, has signalled it may further increase its $1.6 billion bid based on shares if TPG decides to improve its $1.4 billion cash offer.
"M2 reserves the right to submit another proposal to iiNet, although there will be no obligation on M2 to do so," M2 Group chairman Craig Farrow said.
iiNet is giving TPG, a much bigger suitor by market value, until Tuesday next week to increase its takeover offer.
The telco which wins the battle for iiNet stands to create Australia's second-largest fixed line internet provider behind Telstra.
Phillip Capital senior client adviser Michael Heffernan said iiNet was, therefore, more likely to favour M2's bid.
"iiNet's got well over a million customers ... if you add that to M2, you're going to propel them to be the next biggest after Telstra," he said.
"You can get the synergy benefits probably more than TPG can."
M2 is offering the equivalent of $9.25 worth of its stock, based on its recent share price, for every iiNet share the takeover target's investors own, plus a special dividend of 75 cents.
Chairman Michael Smith said both offers required careful analysis by the iiNet board as TPG was offering cash while M2 was offering shares in a significantly enlarged telco.
"Without pre-empting any response from TPG, they have a right to submit a revised proposal in the coming days," he said, adding that once TPG's position was known, iiNet's board would make a recommendation to shareholders about which offer they should support.
Shares in iiNet were 11 cents lower at $9.94, while M2 was down nine cents at $10.98 and TPG seven cents weaker at $8.94.
M2 launched its rival $1.6 billion offer on Monday, beating TPG's offer that iiNet's board had already urged shareholders accept.
Mr Farrow said his M2 Group would dump its current offer and financing approvals by Wednesday if TPG and iiNet failed to reach an agreement.
While TPG's cash offer was initially welcomed by iiNet's board, founder and former chief executive Michael Malone has expressed concerns about the cash offer, instead backing the M2 bid.
