Communications company M2 has lobbed a takeover bid for internet service provider iiNet in an effort to trump TPG.

TPG, which already owned 6.25 per cent of iiNet's shares, last month lobbed an all-cash offer of $8.60 a share for iiNet, with shareholders still getting a 10.5 dividend on top.

M2 is taking a very different approach, offering 0.803 of its shares for every iiNet share, plus a $0.75 per share special dividend for iiNet shareholders.

The deal would leave current iiNet shareholders with 42 per cent of a merged entity.

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The current value of the M2 shares being offered is equivalent to $9.25 per iiNet share, plus the 75 cent dividend and a forecast $1.37 per share in improved profits that would arise from synergies from the merger and accrue to both sets of shareholders.

M2 says that puts the value of their deal at $2.25 billion, up from TPG's $1.4 billion bid.

However, investors generally grant a substantial premium to the certainty of all-cash offers, such as TPG's, over share-based merger deals, meaning the two offers are a lot closer than the headline figures would suggest.

While the value of synergies is always highly uncertain ahead of merger implementation, M2 argues that its offer excluding the estimated cost savings is still worth around $10, and 16 per cent higher than TPG's.

M2 said that intends to maintain iiNet as a standalone brand if its offer is successful.

The bidder said it has a strong track record of integrating acquired businesses, having done so with Commander, Primus and Dodo.

As a sweetener for iiNet board members considering the rival proposal, M2 plans to keep two on as part of an expanded board if the merger proceeds saying that will help maintain continuity in iiNet's operations.

As the two companies returned to trade, iiNet jumped 14.8 per cent to $9.94, while M2 group fell 5.5 per cent to $10.89 by 11:30am (AEST), reducing the value of its all-share offer.