My theory regarding MCL being taken out by a large telco is based on the assumprion that such a telco would rather let MCL take the risk in getting the process up and running. Last year, MCL was valued at around $5 million (say), today it is $33 million. But in that time the company has moved a bit closer to achieving the successful setup of their operation.
If you were wanting to set up the operation yourself, you have to ask whether it would be better to buy the basics for $5 million or a more advanced (hopefully less risky) operation for $33 million. Or do you wait even longer until the whole thing is up and running fully (even less risk), and pay even more?
For major telcos around the world, the sorts of figures we are talking are mere peanuts. So it would make sense to wait.
Obviously, if somebody wanted to buy out MCL tomorrow, they would not get the shares at today's price. Take for example todays offer for JBM by Xstrata. Yesterday JBM closed around $17.10. Today Xstrata offers $23 cash per share. And speculators push the closing price to $23.82, in expectation of possibly getting a higher offer still. By buying JBM at $23.82, with a cash offer of $23 on the table, your downside is limited to 82 cents (3.44 percent), but the upside is unlimited. Certainly worth a gamble.
As MM indicated, once the offeror has 90 percent of the shares in the target company, they can proceed to 100 percent automatically. The remaining 10 percent have no choice but to accept the offer.
If the offering company offers shares rather than cash, there are significant tax benefits too. With a cash offer, you are deemed to have sold the shares, and are thus up for any capital gains tax payable on the transaction.
With a share offer, the transaction becomes exempt from capital gains tax until such time as you sell the shares you received as payment for your original shares. This is one of the reasons why Wesfarmers is at such an advantage in their takeover of Coles. The Coles shareholders are most likely going to be quite happy keeping Wesfarmers for the dividends.
With a bit of luck we could see MCL moving upwards as soon as the share purchase plan closes. I believe that occurs on November 2.
Geoff
MCL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
