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the ublikely millionaire

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    Here’s a ‘good news’ business story from The West Australian newspaper which makes good weekend reading. It’s all about Michael Malone, co-founder and driving force behind Iinet. This bloke has made quite a few investor’s fortunes (he’s certainly added to my coffers), and I think it’s worthwhile celebrating his achievement. Goodonya, Michael.

    (Of course, I am always on the lookout for the next thing – and I happen to think it’s Swiftel. But anyone who has noticed my posts will probably know that already!)

    The Unlikely Millionaire

    By Fran Spencer

    MICHAEL MALONE doesn't look like a $50 million man. There's no Armani suit, no $200 tie, no Mont Blanc pen in his pocket, and his office - containing a slightly beaten-up couch and coffee table as well as a desk - doubles as a meeting room for anyone who needs the space.

    In fact, on the day he meets WestBusiness, there's not even a belt in his trousers.

    But appearances can be deceiving. At the close of business yesterday Mr Malone's 45 per cent stake in internet service provider iiNet, the company he founded in his parents' garage 10 years ago this month, was worth a tidy $54.3 million.

    And with shareholders expected to agree to iiNet's $72 million takeover bid for New Zealand ISP iHug on Friday, Mr Malone will be heading the third biggest ISP in the country - topped only by the internet arms of telco giants Telstra and Optus.

    Not bad for a mathematics graduate who admits he got into the business purely to ensure he could stay connected to the internet.

    "Myself and (co-founder) Michael O'Reilly were at uni, and when we were leaving we realised there were no other ISPs out there . . . so to preserve our own internet access we decided to set up our own ISP," Mr Malone said.

    "We started in 1993, and as far as I know we were the first one in WA."

    Lacking the money to rent office space, and hoping to be subsidised by other university graduates in the same predicament, the then 24-year-old entrepreneurs set up the technical side of the business in the Malone family garage and established perhaps the world's smallest call centre.

    "The call centre was in my bedroom. We had 24 hours a day, seven days a week technical support and it was literally because the phone was by my bed," Mr Malone said.

    By 1995, iiNet had outgrown the garage and its founders, now with "two or three staff" in tow, made the move to a city office.

    On the suggestion of one of their new staff members, the business partners diverted from the norm and began hiring call centre operators with hospitality and tourism rather than technical experience. Based on the maxim that "techies just want to get off the phone" rather than deal with customers, it's a hiring policy iiNet still adheres to and one Mr Malone believes helps set the company apart from some of its bigger rivals.

    But despite the progress in those early days, Mr Malone admits, there was still no grand plan in place.

    "It was the usual start-up - for the first few years it's all about survival and getting from month to month," he said.

    "There wasn't really a grand plan or a blueprint. We moved on from issue to issue, I suppose the business requirements forced us on each year.

    "We moved into the city because we had no more room . . . there wasn't a clear five-year plan. The five-year plan was just to be here in five years, rather than anything else."

    In fact, he said, he and Mr O'Reilly "sort of saw the business having a five-year lifespan". When that time came in 1998, Mr O'Reilly and his wife decided they wanted to sell out.

    The business was put on the market and "a good offer" came along shortly after. But while the O'Reillys were keen to move on, Mr Malone and his wife decided they weren't ready to exit the venture.

    "The offer for the business was for $5 million. I made a deal with Michael that he'd give me a fortnight, and if I could raise the money he'd sell his half to me, otherwise I'd sell my half to the buyer," Mr Malone said.

    With just $15,000 equity in his house, Mr Malone was able to convince a bank to lend him the money to buy out his partner - which left him with a new problem.

    "We needed to fund that (loan) and the business couldn't fund it, so we went to a listing," he said.

    IiNet hit the boards of the stock exchange in 1999, on the cusp of the tech boom, and was able to attract staff with the lure of options and shares.

    In the meantime, the company had also begun quietly buying up smaller ISPs. Then in April 2000 the tech wreck hit, and by the end of the 2001 financial year iiNet's share price "was in the toilet".

    So in the face of a distinct lack of market interest, iiNet management began buying shares.

    By the time the tech wreck was over, and iiNet's share price started tracking north again, almost 60 per cent of the company's shares were owned by management or board members.

    SINCE August last year, iiNet shares have rocketed almost 300 per cent - with some 80 per cent of that growth coming in the past two months on the back of speculation surrounding the iHug deal.

    At the closing bell yesterday, iiNet's share price of $3.02 valued the company at $120.6 million.

    At the time the company began seriously negotiating with iHug in March, iiNet shares were trading at a range between $1.20 and $1.30.

    On final approval next week, the deal will carry iiNet into the New Zealand market and more than double its subscriber base to 300,000.

    It will also open up a new revenue channel, voice, and will mean the WA upstart has achieved something very few tech-related companies can boast of since the wreck - paying cash for a rival, even if cash makes up only about half of the purchase price.

    But while analysts and investors are already regarding the takeover as a done deal, Mr Malone said the company "hasn't opened the Moet yet".

    "I think on October 21, once the shareholders meeting is over and the deal's been consummated then we'll pop the cork," he said
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