As Grant Samuel prepares a report on Vocus Communications bid for M2 Group, M2 shareholders are wondering what they have to do to get fast-money hedge funds interested in the deal.
M2 shares have consistently traded at a 7 to 8 per cent discount to Vocus' bid, despite what appears to be minor regulatory hurdles and about a three-month timeframe to (likely) completion.
Hedge funds sales desks reckon offshore funds have all-but switched off any Australian deal requiring regulatory clearance after a tough few years. Even deals that have all-but received the competition regulator's blessing.
And they say limited liquidity in M2 means it is hard for them to be interested enough to get a meaningful stake and make the trade worthwhile. Funds would often take a long position in the target and short the acquirer, squeezing the spread and causing prices to converge around the agreed-upon deal terms.
But perhaps the most interesting theory is fear that the M2/Vocus deal may not complete because of rampant consolidation in the telecommunications sector locally and globally.
Should any offshore player want to get a meaningful presence in Australia, it is quickly running out of options. And Vocus may be one of its last bets. Should Vocus fall to a predator, the $3 billion tie-up would be off and M2 would be left standing at the altar and consulting bachelor life once again.
It'll be interesting to see trading in both M2 shares and Vocus shares leading up to the scheme booklet's release in December. As mentioned, Grant Samuel has been engaged for the independent expert's report.
M2 shareholders are expected to vote on the deal at a scheme meeting in mid-to-late January.
