M2Group (MTU) has moved quickly to play down its claim in its proposed bid on Monday for iiNet (IIN) that there would be an extra $1.37 a share of ‘synergies’ if its bid was successful.
M2 valued its proposal at $11.37 for each iiNet share, which would value the Perth-based provider at $1.85 billion, but that includes the so-called synergies of $1.37 a share (hot air).
Combining just the share and dividend offer would value the offer at about $1.5 to $1.6 billion (its now down more than 6% based on the share price falls on Monday and yesterday in MTU shares).
The inclusion of the so-called synergies, which are only estimates by the bidding company are not real and quantifiable, like the share and cash terms of the offer are.
The reference to synergies brought some criticism and it must have struck a chord at M2Group and its advisers, judging by the statement rushed out to the market yesterday.
In that statement to the ASX M2Group said it “wishes to clarify the headline value of its Competing Proposal. Under M2’s Competing Proposal, iiNet shareholders would receive 0.803 M2 Shares plus a $0.75 special dividend for each iiNet share."
Based on the closing price of M2 Shares on 24 April 2015 (being the last trading date before the announcement of the Competing Proposal), the implied value of M2’s Competing Proposal is $10.00 per iiNet share, which represents a 16.3% premium to the current $8.60 cash offer from TPG.
M2 has offered a largely scrip-based offer to enable iiNet shareholders to benefit from the synergies delivered by a combined group. M2’s announcement yesterday included M2’s view of the estimated value of synergies that would accrue to iiNet shareholders as shareholders in the enlarged M2 Group.
"Whilst that value was determined based on considerable work undertaken by M2, M2 recognises that there may be differing views on the appropriate value to be ascribed to such synergies and risks in achieving such synergies. In assessing M2’s Competing Proposal, the iiNet board will ultimately need to form its own view on the estimated value of synergies."
“If M2 and iiNet enter into a scheme implementation agreement, it is expected that an independent expert will be engaged to (i) opine on whether the offer is in the best interests of iiNet shareholders; and (ii) produce a report outlining their analysis and conclusions."
“We would usually expect that report to consider the value of transaction synergies and the potential circumstances that could adversely impact the timing, achievability or indicative value of those synergies post transaction."
“Should this transaction proceed, iiNet shareholders would have the opportunity to consider these materials before being asked to vote,” M2Group said in its statement.
iiNet directors were expected to issue a statement on the offer from M2Group yesterday, but it didn’t come.
iiNet shareholders told the board on Monday evening that the offer wasn’t worth $11.37 (that is, including the synergies), but $9.50 on Monday night, and around $9.41 at the close last night – TPG has bid a total of $8.75 with the final dividend. TPG has so far not identified any synergies, unlike M2Group.
But it’s offer is cash and it has the capacity to boost the cash offer price to blow M2Group out of the water, if it wants to.
It also has around 6.3% of iiNet’s shares, which is a handy starting point.
iiNet shares rose 2.2% yesterday to $10.02, TPG shares edged up 1.7% to $9.44, but M2Group shares dipped 1.4% to $10.74.
It wouldn’t surprise to see the iiNet board to issue a statement to shareholders later today.
