Shares of telecommunications giant TPG Telecom Ltd (ASX: TPM) have been hammered this morning after M2 Group Ltd (ASX: MTU) confirmed that it had entered a competing bid for iiNet Limited (ASX: IIN). The stock fell 8.9% to be trading at $8.75, down from its closing price of $9.60.
So What: On 13 March, TPG Telecom made a $1.4 billion all-cash offer to acquire 100% of iiNet's shares. Based on an official presentation to investors, the acquisition would have generated enormous synergy benefits for TPG at a reasonable price of $8.60 per iiNet share (plus a 10.5 cent dividend).
While there has been speculation that M2 Group or Singapore Telecommunications Ltd (CHESS) (ASX: SGT), owner of Optus, might lodge a competing offer, many analysts had doubted the rumours given that TPG already had a significant ownership of the business, while M2 Group had also recently acquired New Zealand's Call Plus Group for $250 million.
Under M2 Group's bid, iiNet shareholders would receive 0.803 M2 Group shares per iiNet share, in addition to a 75 cent special dividend (franked to the maximum extent possible).
Now What: Many analysts believed that TPG's initial $1.4 billion bid represented a bargain given the synergies that could be recognised from the deal. While it is still possible that TPG will enter a counter offer to M2 Group's bid, it won't come as cheap as investors had first hoped which would explain today's significant decline.
