After having surged nearly 25% on Friday, shares of iiNet Limited (ASX: IIN) have continued their rampant run today, climbing as much as 4.7% higher to a top of $8.90.
So What: Friday's 25% jump came as a result of TPG Telecom Ltd's (ASX: TPG) takeover proposal which valued the business at $1.4 billion, or $8.705 per share ($8.60 cash consideration plus a 10.5 cent fully franked dividend). As such, investors might find it strange that the share price has climbed beyond that price tag today.
Although iiNet's board has unanimously backed the deal, stating that the price offered is a "significant reward for shareholders", some analysts believe the offer price is still too low. As reported by the Fairfax press, Credit Suisse believes $1.4 billion would be a 'bargain' given the enormous synergies that would be created for the combined entity.
Bradley Clibborn, an analyst for the financial services group, believes there is scope for a competing offer with the most logical candidate being rival M2 Group Ltd (ASX: MTU), which owns leading brands such as Dodo, iPrimus and Commander. He said M2 Group could offer up to $10.00 per share for the business and would not face the same potential competition issues as TPG given the combined entity would maintain a smaller market share.
According to Fairfax, Credit Suisse has upgraded its rating on the stock to Outperform from Neutral whilst also upping its price target by 40% to $9.82 per share.
Now What: Before investors put too much weight behind this speculation, they should remember that M2 Group has said it will focus more on organic growth rather than growth by acquisition. It would also endure higher costs of capital and a potential blocking stake built up by TPG (which already owns 6.25% of the business), as highlighted by Credit Suisse.
While a purchase of iiNet could certainly have its advantages, investors would be wise not to buy iiNet specifically in the hope of a counter offer (although one is certainly possible). Instead, investors could look to buy shares in M2 Group or TPG Telecom — both of which are well placed to benefit from Australia's data 'boom'.
