The Australian Competition and Consumer Commission has already flagged a public review of the takeover once both parties submit their proposals. "We will call for submissions at that time and details will be posted on our public register," the ACCC said in a statement. "The ACCC reviews mergers and acquisitions which have the potential to raise concerns under the Competition and Consumer Act 2010. "The CCA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market." The recommended deal would ensure that shareholders of record on March 16 would be entitled to receive the fully franked interim dividend of 10.5c, the companies said in a statement to the Australian Securities Exchange. The proposed deal was set at a 26.3 per cent premium to iiNet's Thursday closing price of $6.81, and at $8.60 was "the highest share price ever" for the Perth-based internet service provider, the statement said.

iiNet founder and former chief executive Michael Malone still owns about 4 per cent of the ISP. Under the $1.4 billion deal, Mr Malone's stake would be worth about $56 million. Sydney-based TPG already owns 6.25 per cent of iiNet. The transaction will see it acquire 100 per cent. Last month, iiNet said its first-half net profit edged up 1 per cent to $29.5 million as it zeroed in as a standalone company on Singtel-Optus for the title of the No.2 Australian fixed-line internet service provider after Telstra. In the first half, iiNet closed the gap between itself and Singtel-Optus to just 13,000 broadband subscribers. Its total broadband customer base reached 975,000 in December last year, compared with 988,000 customers at Optus. TPG, which is yet to report its half-year financial result, had 748,000 broadband subscribers as of the end of the 2014 financial year.

TPG executive chairman and chief executive David Teoh said the combined businesses will be well positioned to capitalise in an up scaling in the rollout of the national broadband network. ""iiNet and TPG are highly complementary businesses in terms of geographic presence, market segments and corporate customer base," Mr Teoh said. iiNet chairman Michael Smith said the board views the $8.60 offer as a reward for shareholders who have shown faith in the ISP. "The price of $1.4 billion is a very tangible measure of the value that the extraordinary people of iiNet have created through their innovation, brilliant service and capacity to add value," Mr Smith said. Citi analyst Justin Diddams said the deal makes strong strategic sense, but also believed that Optus may be interested in the potential scale benefits of iiNet.

"The current offer from TPG looks fair value, based on the implied multiples on the deal, albeit slightly below our target price of $9.00 per share," Mr Diddams said. "That said, it's not a premium price given the likely cost synergies and we note TPG stated the deal is earnings per share accretive in year one. There's also scope for a counter offer from Optus, given the strategic importance of the iiNet customer base."