MMA Offshore’s trading patterns in the past month suggested a higher takeover offer from its suitor was inevitable – it was always just a question of how much higher.
Situations like the one involving MMA Offshore, where a company’s share price trades above an agreed buyout proposal price, are rare, unless there’s the prospect of another bidder turning up with a sweetened deal.
When SQM was bidding for Azure Minerals last year, shares soared above the $3.50 a share bid price to $3.85 after speculation that billionaires Gina Rinehart and Chris Ellison would snap up a blocking stake in the business.
In the MMA Offshore case, there weren’t any interlopers.
It was more that the fundamentals of the company’s earnings had investors betting that the existing bidder – Cyan Renewables – would offer more.
Situations like these create fertile ground for arbitrage funds that make money betting on the outcome surrounding share price movement involving a stock at the centre of corporate activity.
The game plan for the arbitrage funds is to push the share price as high as it can go, forcing the suitor to pay as much as possible to win their target.
In the case of MMA Offshore, Cyan Renewables made efforts to hold out before eventually caving to the inevitable after the company upgraded its earnings forecasts.
Cyan Renewables has called the offer “best and final”, so there will be no further increase.
The risk for the bidder is that investors continue to protect their positions and they miss out on buying the target.
Some thought it should have sweetened the deal weeks ago.
After MMA Offshore’s shares had traded at $2.70 – 10c higher than its earlier bid price of $2.60 – the shares closed on Thursday at $2.63.
The arbitrage funds will still stand to profit from the higher offer, but with the share price now below the bid they don’t stand to win any more.
A deal is expected to go through, with other holders backing the proposal.
About 15 per cent of the stock is the hands of hedge funds while long-only funds largely control the remaining interests, including 7.95 per cent holder Thorney Investment Group, which has supported the latest proposal.
Cyan Renewables is owned by Seraya Partners and is Asia’s first dedicated offshore wind vessel operator capitalising on the energy transition.
It is advised by UBS, while Rothschild & Co is working with MMA Offshore, with the pair negotiating since October.
It bodes well for the coming float of the smaller global marine business Bhagwan Marine.
Also adding support to the Bhagwan Marine float will be the stellar debut performance of Guzman y Gomez on the ASX on Thursday with shares soaring 36 per cent on the first day of trade.
Six companies seek to raise $71m on the ASX
The ASX will welcome four debutantes in coming weeks, while Webjet could split in two if shareholders agree
Good, bad or ugly? CDC valuation up in the air
Jarden tips there will be a partial selldown of major data centre operator CDC in the near future in the wake of the $24bn AirTrunk sale last week.