Did TPG Telecom Ltd (ASX: TPM) just pull off an eleventh-hour goal save?
The Sydney-based broadband and telephony services company managed to snatch west coast rival iiNet Limited (ASX: IIN) from M2 Group Ltd (ASX: MTU) with a sweetened offer.
iiNet's board has switched sides again to throw its support behind TPG Telecom, unless it gets a better offer. All eyes are on M2 Group now and one certainly can't rule out another bid.
Shareholders of iiNet may feel a little like Oliver Twist holding their hand out for more – and we may just get that.
While most won't feel like celebrating with iiNet's share price tumbling 2.2% in lunch time trade to $9.78, the stock is still trading comfortably ahead of TPG's revised offer of $9.55 a share.
This tells me that the market is anticipating a higher bid.
TPG's second improved offer, which includes a fully franked 75 cent special dividend, isn't necessarily higher than M2 Group's scrip offer. But iiNet's decision to back TPG's marriage proposal is because TPG is giving shareholders the option of taking the balance of $8.80 either as cash or scrip.
The surety of receiving cash is appealing as taking the bidder's stock as payment means the final amount iiNet's shareholder's get will fluctuate depending on the bidder's share price performance.
Of course the downside is that iiNet's shareholders taking cash will not be able to partake in any future growth of the merged entity. No matter who wins iiNet, the merged entity will become Australia's second largest telco.
On the other hand, those eyeing TPG's scrip face another problem. TPG is capping the amount of scrip on offer to 27.5 million shares. If the demand for TPG's stock exceeds this, iiNet shareholders opting for scrip will be scaled back and be paid in cash instead.
I suspect demand will be high and a scale back is inevitable given that the scrip cap represents just 18.4% of outstanding iiNet shares (excluding those owned by TPG).
TPG was the first to put iiNet into play with an opening bid in March offering $8.60 in cash for each iiNet share it doesn't own.
M2 Group then crashed the party six weeks later by offering a special dividend of 75 cents and 0.803 of its stock for each iiNet stock.
This meant M2 Group's offer price has varied between $9.37 and $9.67 a share since it made its approach.
It's nice to have two suitors fighting over you, and as I mentioned, there is likely to be another chapter to the iiNet marriage saga.
