Takeover bid for M1: To accept or not to accept?

> Axiata may reject bid and launch its own to gain a bigger stake in Singapore telco

PETALING JAYA: The takeover bid for Singapore’s M1 Ltd could see more twists as Axiata Group Bhd may reject the offer and launch one of its own to gain a bigger stake in its associate.

Yesterday, Keppel Corp Ltd and Singapore Press Holdings (SPH) Ltd told the Singapore stock exchange that they launched a preconditional offer for M1 at S$2.06 (RM6.24) per share, which represents a 26% premium against its last traded price of S$1.63.

The offer price values Axiata’s stake in M1 at about RM1.7 billion.

However, Reuters quoted sources as saying that Axiata views the offer as “opportunistic” and “inadequate” and instead is in talks with private equity firms and other companies to initiate a competing bid.

Considering the current highly competitive cellular market that requires sustained capex rollouts, AmInvestment Bank Research opined that Axiata Group Bhd will probably accept the offer. Especially since the 28.7% stake in M1 is not considered a strategic asset for Axiata.

Keppel and SPH own 19.3% and 13.5% stake in M1, respectively.

Keppel said with majority control, the group and SPH, who are long-term shareholders of M1, would be better able to support M1’s management to implement strategic and operational changes to strengthen its performance and position as a connectivity platform.

“To deal with the fast-changing landscape and increasing competition in the Singapore telecommunication sector, M1 will need to undertake extensive business transformation requiring long-term shareholder and management commitment.”

In a statement issued after the offer was made, Axiata seemed to emphasise on getting the accurate future value of M1 (inclusive of an acceptable control premium),consistent with market standards as well as reviewing all options available in relation to its shares in M1.

“Hence, the above shall be the primary bases for Axiata to review the offer together with other considerations, including but not limited to, comparable premium on precedent transactions within the Asean market, M1’s historical trading trend whereby the price has been depressed for more than a year vis-a-vis its true value potential, long-term growth potential, and future competitive outlook.”

Axiata’s share price closed 2 sen or 0.4% lower at RM4.73 yesterday on 2.98 million shares done.

AmInvestment Bank Research is neutral on the development as the sale proceed of RM1.7 billion will improve Axiata’s gearing levels, with FY19 net debt-to-ebitda (earnings before interest, taxes, depreciation and amortisation) decreasing from 1.6 times to 1.4 times.

Given that M1’s FY19 consensus price-to-earnings ratio is 14 times, which is much lower than Axiata’s 33 times, the research house expects a slight FY19 earnings per share reduction of 2% for Axiata from the equity sale, as the loss in earnings contributions will be greater than interest savings.

It is maintaining a “buy” call on Axiata with an unchanged fair value of RM6.05.