Vodafone pays premium in ihug deal

Vodafone has bought New Zealand phone and internet company ihug for $41 million - giving it entry into the internet and toll calling markets.

Vodafone chief executive Russell Stanners said yesterday that the deal strengthened the UK company's position in the market, with customers benefiting from the combined strength of both firms.

"It's a perfect fit. Right now, we are the leaders in mobile, however we only have 20 per cent share of the telecommunications market," said Stanners.

"When combined with ihug's strength in fixed line broadband and calling, we can develop and deliver even more compelling propositions.

"It's a very exciting time, with two strong challengers coming together to take on the competition."

Stanners said ihug would keep the same management.

Ihug chief executive Mark Rushworth said he believed it would be a smooth transition as the two companies had similar brand values.

"We're thrilled with this news. A strong and dynamic parent company like Vodafone is just what we need at this stage of our growth," said Rushworth.

Stanners in July denied Vodafone was considering the purchase.

Ihug was sold by Perth-based iiNet, Australia's third-largest ISP. ASX-listed iiNet voluntarily suspended trading for five weeks this year after discovering accounting and clerical errors that resulted in a downgrade to its profit forecast. It bought ihug's Australasian operations for $81 million in 2003 but has sold only the NZ operation.

The sale of ihug for $41 million was $6.8 million higher than its book value and was expected to take two weeks.

The Government announced in May it would force Telecom to open its phone and internet network to competitors, and soon after, iiNet received unsolicited offers for ihug from a number of telecommunication players.

Ihug was put up for sale by iiNet on July 20, with investment adviser Grant Samuels overseeing the sale.

IiNet chairman Peter Harley said it was pleased that a fair price had been made, which delivered a good, clean result for iiNet shareholders.