The punters continued hopping into iiNet (IIN) shares yesterday, driving them up to an all time high of $8.89, before they settled back to close up 4% at $8.84.
That’s almost 14c above the full cash offer price from TPG Telecom (TPM) of $8.705c, which includes the interim dividend of 10.5c a share.
The surge is being driven by momentum investors, especially hedge funds who are punting on another bid emerging – they look like being disappointed.
TPG shares eased 2.7% to $8.86.
Many analysts reckon the ‘low price’ will allow a counter offer to the $1.4 billion cash offering from TPG.
But they will have to get the cash together and make the offer conditional on due diligence – which TPG doesn’t want.
TPM vs IIN 1Y – More bids for ‘bargain’ iiNet?
Credit Sussie reckons the TPG offer is a bargain, but TPG starts with a small stake in iiNet of 6.25%, which can be easily boosted to 10%, enough to frustrate any counter bidder which will want full control so they can access all iiNet’s cash flow (to repay debt).
Credit Suisse estimates the acquisition of iiNet would add to TPG’s earnings, 18% in the 2016 financial year and 22% in the 2017 financial year.
TPG says the deal will boost earnings from the first year, so Credit Suisse’s point is hardly dramatic.
“We feel TPG’s offer for iiNet is intuitively too low, given the substantial synergies available to TPG or another strategic acquirer,” Credit Suisse analyst Bradley Clibborn said in a note to clients.
There is scope for a competing offer, Mr Clibborn said, with the most logical candidate being M2 Group (MTU) – owner of the Dodo and iPrimus internet businesses.
"We believe MTU could pay up to $10 per share with an around 80 per cent scrip component and still have an 8 per cent to 12 per cent accretive deal," Mr Clibborn said.
Citi analyst Justin Diddims also believes the bid undervalues the target and flagged the potential for a rival bidder to emerge.
"Given the potential deal synergies, access to low interest rates and an average offer from TPG, we think telecom operators Optus (via SingTel) and M2 Group should be reviewing their options to counter offer, although each face constraints,” Diddams said in a note to clients over the weekend.
M2 Group shares jumped on Friday in the wake of the TPG offer as punters saw it as a target for someone like Optus.
But its shares fell 32c, or 3.1% yesterday to $10.03. That values M2 group at $1.8 billion.
At yesterday’s close, iiNet was worth $1.4 billion, which would make it tough for M2 Group to launch a bid that would offer the same earnings contribution from the start that TPG’s offers to TPG shareholders.
M2Group would have to offer shares and a little bit of cash, not cash, in any offer. That will make it tough when compared to an all cash offer from TPG.
