M2 Group now appears to have the higher ground on TPG in the bidding war that has erupted over iiNet.
iiNet has now called on TPG to offer a counter bid following M2's $1.6 billion share swap offer - which came over the top of TPG's initial $1.4 billion bid.
TPG will now have three business days to respond to M2's bid, which is made up mostly of company stock.
iiNet chairman, Michael Smith, said the company had to recognise that evaluating the M2 and TPG proposals required careful analysis given TPG was offering cash and M2 was offering shares in a "significantly enlarged" telecoms company.
"There is some judgement on our part, however, we do believe that based on the terms currently in front of us, the M2 proposal warrants triggering the matching right process and the majority of analyst commentary has been consistent with that view," he said.
"Without pre-empting any response from TPG, they have a right to submit a revised proposal in the coming days.
"Once we know their position, we will provide a recommendation to shareholders as to which proposal we believe they should support.
"Ultimately, it will be up to the shareholders, as to whether they accept the offer the board recommends."
M2 have advised iiNet that if a deal is not made by 5pm, May 6, the current offer will be withdrawn.
M2 chairman, Craig Farrow, welcomed the decision to issue a relevant notice to TPG, thereby triggering TPG's matching rights under the scheme implementation agreement.
"M2 is pleased that the iiNet board has now made the decision, and that iiNet acknowledged the value premium embedded in the M2 offer, plus the potential value of synergies," he said.
According to the iiNet board, synergy benefits would only be realised by shareholders through future movement in the M2 share price subsequent to the scheme being approved by shareholders.
"These benefits are only likely to be reflected in the future share price movements to the extent they are not already priced into the premium M2 has offered relative to iiNet's share price immediately prior to the announcement of the TPG offer."
Under TPG's previous offer, iiNet shareholders would have received cash consideration of $8.60 per share or about $1.4 billion.
A combination of iiNet and M2 would garner 1.48 million broadband subscribers, compared with the 3 million at Telstra and 988,000 at Optus.