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Amaysim Australia Ltd (ASX:AYS) shares surge higher on takeover speculation

One of the best performers on the market this morning has been the Amaysim Australia Ltd (ASX: AYS) share price.

In morning trade the junior telco company’s shares are up over 8% to $1.01.

Why are Amaysim’s shares surging higher?

Investors have been fighting to get hold of the beaten down shares of this junior telco company after reports speculated that it was a takeover target.

According to the AFR, Optus owner Singtel is believed to be in the early stages of exploring a takeover.

I think that this would make a lot of sense. Amaysim’s shares are down by two-thirds from their IPO price despite a strong rise in mobile subscriber numbers.

This would potentially mean that Optus could add approximately 1.2 million mobile subscribers at a relatively cheap price on a per subscriber basis.

In addition to this, these subscribers are already on the Optus network through Amaysim’s wholesale agreement with the telco giant. I expect this would make a deal far easier and cost effective than it would be for a company like Telstra Corporation Ltd (ASX: TLS) or TPG Telecom Ltd (ASX: TPM) which would almost certainly need to migrate these customers to their own networks.

Neither parties have commented on the speculation at this stage.

Should you invest?

I would suggest investors stay clear of Amaysim. While a potential takeover would be done at a meaningful premium to today’s share price, it is worth remembering that at this stage it is only speculation.

If an offer fails to materialise then you’ll be left holding the shares of a company struggling for growth and experiencing notable margin declines from increasing competition from its rivals.

In light of this, I would suggest investors sit this one out and watch on from the safety of the sidelines for the time being.

Instead of Amaysim I would be buying one of these four buy-rated shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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