This morning shares of West-Australian internet service provider, iiNet Limited (ASX: IIN) have rocketed 27% higher following the announcement of a takeover offer from rival TPG Telecom Ltd (ASX: TPM), whose shares are also up 19%!
TPG Telecom's offer values iiNet at $1.4 billion, or $8.60 per share. However iiNet's recent declaration of a 10.5 cents per share dividend, fully franked, will enable shareholders on the company's register on March 16 to realise a total value of $8.705 per share, if the deal goes through.
For TPG, the deal is a logical one given the similarity of the two companies' product offerings and geographical presence. It also appears well timed, with iiNet's share price falling 15% over the past six months.
iiNet directors were unanimous in recommending the deal to shareholders.
iiNet Chairman Michael Smith said, "The Board views this as a significant reward for shareholders who have shown their faith in iiNet. The price of $1.4 billion is a very tangible measure of the value that the extraordinary people of iiNet have created through their innovation, brilliant service and capacity to add value."
With iiNet shares trading at $8.66 just before midday, it appears investors are confident the deal will be completed, despite the ACCC saying it will review the takeover.
What now?
Shareholders will have the chance to vote on the proposed takeover, with a meeting expected to be scheduled in June. In addition to other conditions being satisfied, the takeover is expected to be implemented in July 2015.
Can you still profit from the deal?
No doubt, shareholders will be cracking out the champagne bottles today at the prospect of receiving a hefty profit come July.
However with the market pricing the stock bullishly, the risk-reward trade-off for investors looking to make a profit from buying iiNet shares today doesn't appear worthwhile. Alternatively, TPG Telecom shares could, if it can achieve significant synergies when it integrates its operations with iiNet, hold significant value for long-term investors at today's prices.
Here's a better bet than TPG Telecom and iiNet…
