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Malone gives blessing to M2 takeover bid

Michael Malone. Picture: Iain Gillespie/The West Australian.

UPDATE 11.15am: Michael Malone has endorsed M2 Group's $1.65 billion scrip-and-cash takeover bid of iiNet, the Perth internet services provider he founded in his parents' garage two decades ago.

Mr Malone, who quit iiNet a year ago but remains a hugely influential figure among the ISP's 12,000-strong shareholder base, said the fit with dodo and iPrimus owner M2 was good and that the suitor's chief executive, Geoff Horth, was "excellent".

In his first comments since M2 yesterday gatecrashed TPG Telecom's agreed $1.4 billion cash bid for iiNet, Mr Malone said he was supportive of the rival proposal.

"The first bid was opportunistic and backed by an iiNet board that was out of ideas," Mr Malone told WestBusiness.

"iiNet and M2 work well together.

"I think Geoff is an excellent CEO."

Mr Malone, who is on holidays in Africa, is thought to own as much as 2.5 per cent of iiNet.

After initially endorsing TPG's $8.60 cash offer when it was announced by both sides six weeks ago, Mr Malone suddenly changed tack and seized on grumblings among some of iiNet's bigger shareholders about the perceived lack of a proper auction, the lack of a scrip alternative and the value of TPG's bid.

Their criticism, in particular on value, was fuelled by a TPG share price that soared in the days after it announced the iiNet bid.

M2 is offering 0.803 of its shares and 75c cash for each iiNet unit, nominally worth $10 based on the suitor's Friday close.

But the see-through value of the bid has slipped to $9.45 this morning based on M2's last trade of $10.84.

The iiNet board is examining the merits of M2's bid before announcing whether it is superior to TPG's offer.

An announcement from the target's board is imminent, and expected to support M2, which will trigger a three-day window for TPG to match or eclipse the M2 offer.

Shares in iiNet were up 24 cents, or 2.45 per cent, to $10.04 at 11.15am in anticipation that TPG may increase its offer. M2 shares were off 25 cents, or 2.29 per cent, to $10.65.