Although most of the market’s attention will be focused on the banks’ earnings reports and the Reserve Bank’s latest stance on interest rates, TPG Telecom Ltd (ASX: TPM) could steal the limelight later in the day should it choose to make a counter-offer for iiNet Limited (ASX: IIN).
In March, TPG Telecom made an all-cash offer for its smaller rival in a deal that would value the business at roughly $1.4 billion. It said it would pay $8.60 per share (in addition to a 10.5 cent dividend) in an offer that many investors considered to be a ‘bargain’ considering the enormous synergies that could be recognised by TPG.
Last week however, rival telco business M2 Group Ltd (ASX: MTU) lodged what is considered to be a superior deal, offering iiNet investors 0.803 of its own shares for every iiNet share held, in addition to a 75 cent dividend (franked to the maximum extent possible). Based on the closing price of M2 Group’s shares on the day prior to the offer being made, that valued iiNet at $10.00 per share or roughly $1.6 billion.
Will TPG match M2 Group’s offer?
Based on the terms of agreement between TPG Telecom and iiNet, TPG has the right, but not the obligation, to match any rival offer made. iiNet gave the company three business days to decide whether it would lodge another bid, giving TPG until close of business today to do so.
While it was initially expected that TPG would match any competing offer made for iiNet, that theory is now up in the air after the company strategically acquired shares in Amcom Telecommunications Limited (ASX: AMM) in an effort to block a merger between it and Vocus Communications Limited (ASX: VOC). Whether that will impact TPG’s strategy moving forward remains to be seen.
M2 Group has also said that iiNet only have until 5pm tomorrow to enter into their proposed scheme of arrangement, otherwise it will withdraw its proposal altogether (but reserved the right to make another proposal).
Indeed, investors will be watching the banks closely and waiting anxiously for the 2:30pm interest rate decision, but today could also be a game-changer for Australia’s telecommunications sector. Watch this space for any updates.